Cisco Delivers Above Expectations for Q3 Despite Headwinds

Cisco Delivers Above Expectations for Q3 Despite Headwinds

In Technology News by Daniel NewmanLeave a Comment

Cisco Delivers Above Expectations for Q3 Despite Headwinds

Cisco shares rose as much as 4% in after-hours trading Wednesday after the company reported better-than-expected fiscal third-quarter earnings, although revenue dropped 8% from last year’s quarter, steeper than the 4% decline in the prior quarter.

Here’s how the company did:

  • Earnings: 79 cents per share, adjusted
  • Revenue: $11.98 billion

Analysts polled by Refinitiv had expected 69 cents in adjusted earnings per share on $11.70 billion in revenue. Comparing results with estimates is not straightforward given the unpredictable impact of the coronavirus during the quarter. Read the full news coverage on CNBC.

Analyst Take: Cisco was able to deliver a solid Q3, which was off from the last year, but all things considered, the company, its employees and investors should feel good about the results.

A Mixed Bag of Category Results Lead to Revenue Falloff

Cisco has had headwinds all year. As a global company, the first quarter of the calendar year faced uncertainty in China–First trade and then COVID-19. Just as that began to take shape, COVID-19 became a worldwide epidemic completely changing the face of work. This led to the company moving away from business as usual and forming a COVID-19 response that meant working from home for 95% of its employees while making significant donations to support hospitals and global pandemic response; all of which slowed sales.

This led to significant declines in Infrastructure, Applications and Other Products. Asia Pacific numbers were also off due to the above mentioned challenges in China and that region.

The decline in applications was asterisk worthy as the company did see a significant 2-4x growth by region in Webex Teams but delivered the service for free during most of the quarter as part of its Covid-19 response.

Software Services and Security Highlight Strength 

Not all areas of the business saw declines. There were a couple of real bright spots including Security, which continues to be a strength for Cisco as company’s more than ever need to shore up intrusion risk. Work from home will amplify this and it should continue to be a strong segment for Cisco.

The other area that saw encouraging results was software subscriptions which grew 9% YoY as 74% of the company’s software revenue is now recurring subscription services. This will be a growth area to keep an eye on.

Cisco’s Forward Guidance Delivers Encouragement 

The company was able to provide forward guidance for the next quarter, which has been spotty among tech. I think it is good that Robbins and the Cisco team have a handle on expectations. This should help be a bell weather of future performance. The bad news is the declines continue, albeit at a similar rate to this quarter. Depending on how quickly things start to reopen, I could see Cisco’s next quarter be a bit better. Especially as services that have been offered free during Covid-19 like Webex start to bill in some instances. Additionally, companies with stronger balance sheets will continue to invest in tech to better position against future unexpected events. Much of this investment will benefit Cisco’s diverse portfolio.

Overall Impressions of Cisco Q3 2020 Earnings 

With each passing day, we head deeper into the territory of seeing the full impact of Covid-19 on earnings across all sectors.

Technology has definitely fared better than many segments as work from home, e-commerce and streaming services have become must haves, but as the lockdowns continue and/or certain parts of the economy start to open up, we are going to get a much stronger indication of over all economic recovery and in the case of Cisco, the impending demand for IT infrastructure.

I believe, tech will weather the storm better than most and Cisco benefits from being diverse and having its solutions be core to upgrading connectivity such as 5G and WiFi while adding layers of intelligence that make networks more robust, secure and accessible.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

Read more analysis from Futurum Research:

Nvidia has Become a Power Broker for the Next Wave of Datacenter Technology

Think 2020: IBM Goes Vertical With the Financial Services Ready Cloud

AWS Results Still a Bright Spot Within Amazon’s Q1 Earnings

Image: Cisco

 

The original version of this article was first published on Futurum Research.