Cisco Jumps on Forecast; CEO Sees ‘Signs of Improvement’

Ian King (Bloomberg) -- Cisco Systems Inc. shares jumped as much as 9.6% after the company’s second-quarter forecast indicated it will beat analysts’ projections and suggested corporations and governments are beginning to resume spending on networking gear as the economy slowly recovers.

Revenue in the quarter ending in January will be flat to down 2% from a year earlier, the San Jose, California-based company said Thursday in a statement. Analysts on average had projected a decline of 3%. Profit, excluding certain items, will be 74 cents to 76 cents a share. Wall Street was looking for 74 cents, according to data compiled by Bloomberg. Shares of the company traded as high $42.38 in extended trading, after closing at $38.67 in New York.

“Our customers worked very hard to get workers set up from home then they took a breather,” Cisco Chief Executive Officer Chuck Robbins said in an interview. “In this past quarter many of them have started executing on projects. Businesses are saying: ‘I don’t know when this is going to end, but it’s going to end, so we need to do this to be ready.’”

A large portion of Cisco’s revenue comes from purchases of expensive network hardware by government agencies, corporations and video and phone service providers. That makes its results an early indicator of business confidence. Robbins is trying to get more sales from software and subscriptions, but progress has been disrupted during the pandemic by a drop off in demand for internet switches and other gear.

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In Cisco’s Americas region, sales fell 10%. Robbins has called on U.S. politicians to agree on a stimulus package to help the economy weather the impact of the pandemic. The outgoing Trump administration has pulled back from those negotiations, though, leaving it to Congress. In other regions, attempts to boost economies hurt by the pandemic helped to lift government spending on infrastructure, Robbins said.

Robbins’s focus on software and services is a response to changes in networking technology, which relies less on pricey hardware these days. The strategy helped Cisco return to growth -- until the pandemic hit. In the company’s 2020 fiscal year, which ended in July, revenue fell 5% and analysts are predicting another decline this fiscal year.

The company is making progress with some of the biggest purchasers of technology -- cloud service providers, Robbins said. Cisco is getting orders from the group, which includes Amazon.com Inc. and Microsoft Corp., by breaking with its past. Instead of offering expensive proprietary boxes of locked-down software built on custom components, the company is selling individual parts, just software or whatever combination these customers want, he said.

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Cisco also hired Scott Herren to be the company’s new chief financial officer. Robbins said Herren‘s background at software company Autodesk Inc. will help Cisco accelerate its efforts in that area.

Cisco said fiscal first-quarter profit fell to $2.2 billion, or 51 cents a share, from $2.9 billion, or 68 cents, a year earlier. Revenue fell 9% to $11.93 billion. Excluding certain items, Cisco made a profit of 76 cents a share. Analysts projected profit of 71 cents a share on sales of $11.85 billion.

Infrastructure platforms, Cisco’s hardware business and main source of revenue, suffered a 16% sales decline, while services rose 2%. Applications, the software business, saw revenue fall 8%. Security related sales increased 6%.