On Wednesday, Cisco Systems projected fourth-quarter revenue above analysts’ conservative estimates, benefitting from a resurgence in enterprise spending and alleviating supply chain constraints.
The company has been actively diversifying its revenue streams beyond its traditional networking equipment business, which faced challenges in recent years due to supply chain disruptions and a slowdown in demand following the pandemic.
In recent quarters, Cisco experienced a surge in spending as companies sought to bolster their artificial intelligence and cloud computing capabilities.
According to Cisco’s Chief Financial Officer Scott Herren, customer consumption of equipment shipped in previous quarters has aligned with expectations, leading to demand stabilization. Additionally, the inclusion of Splunk in Cisco’s product lineup is expected to drive further growth.
Following the announcement, Cisco’s shares rose approximately 5% in extended trading on Thursday. Prior to the earnings report, Cisco’s shares had declined about 2% year-to-date, contrasting with the S&P 500’s 11% gain over the same period.
Cisco anticipates fourth-quarter revenue to range between $13.4 billion and $13.6 billion, exceeding analysts’ consensus of $13.23 billion.
In the third quarter, Cisco reported a 13% revenue decline to $12.7 billion, surpassing estimates of $12.53 billion. The contribution from Splunk, acquired by Cisco to enhance its cybersecurity capabilities, amounted to $413 million.
Despite consecutive quarters of revenue decline due to inventory backlog management, Cisco faces the potential for aggressive pricing strategies to alleviate inventory levels, which may exert pressure on margins throughout 2024, according to Joe Brunetto, an analyst at Third Bridge.
On an adjusted basis, Cisco reported earnings of 88 cents per share, surpassing estimates of 82 cents.
