Cisco Sales Outlook Outshines Estimates, But Profit Disappoints

(Bloomberg) -- Cisco Systems Inc., the biggest maker of computer networking equipment, gave an upbeat forecast for sales growth in the coming years, but disappointed analysts with its profit projections. 

Revenue will increase 5% to 7% over the next four fiscal years, the company told analysts and investors during a presentation Wednesday. That outpaced Wall Street projections. Earnings per share, excluding certain items, will rise at about the same rate -- and that’s where the company fell short. Analysts were looking for greater efficiency to help profit increase at a faster rate than sales.

Cisco shares fell 0.5% to $57.56 in New York following the event. They’re still up 29% this year. 

Chief Executive Officer Chuck Robbins said Cisco will continue to invest in business opportunities, but is struggling with the higher cost of components amid global shortages of semiconductors.

“It’s frustrating because we can’t deliver all of the products our customers want,” he said in an interview. Though those constraints will probably abate next year, Cisco will continue to pour money into projects that will boost its long-term revenue growth, he said. That means putting less of an emphasis on earnings per share. 

Robbins has been working to transform the Silicon Valley stalwart into a provider of networking services delivered over the internet and a seller of software -- rather than just an equipment supplier.

The company has traditionally generated the bulk of its revenue from the expensive switches and routers that form the backbone of computer networks, but that’s changing. Revenue from subscriptions will reach 50% of Cisco’s total by fiscal 2025, the company predicted Wednesday.

Wall Street had expected revenue growth to top out at 6% in fiscal 2022 and then decelerate, according to data compiled by Bloomberg. But they had higher hopes for earnings, with projected growth reaching as high as 9% annually by 2025. 

Executives of the San Jose, California-based company said Cisco is getting a boost from the work-from-home shift. Companies are rushing to upgrade their hardware and software to accommodate the change. And they’re adding security and shifting workloads to cloud service providers, a market that Cisco is now increasingly serving with new products.