Cisco Systems Inc., the largest maker of computer networking equipment, rose the most in six months after the company outlined headway in AI and security technology, helping ease concerns about a sales slowdown.
(Bloomberg) — Cisco Systems Inc., the largest maker of computer networking equipment, rose the most in six months after the company outlined headway in AI and security technology, helping ease concerns about a sales slowdown.
Cisco, which reported fiscal fourth-quarter results Wednesday, is coming off a spike in demand fueled by the end of pandemic-era supply shortages. Though growth is now decelerating sharply from last year’s surge, Chief Executive Officer Chuck Robbins pointed to a bright future where revenue is more consistent — thanks to subscription-based services — and Cisco capitalizes on the transition to AI-focused data centers.
The company said it has already recorded $500 million in orders for AI products, which it offers to so-called hyperscaler customers — large cloud-computing service providers.
“Cisco is committed to helping our customers navigate this transition in a trusted and responsible way to deliver on the full promise of this technology, and we are well positioned to win,” Robbins said on a conference call with analysts.
That outlook helped send the stock up as much as 5.4% in New York on Thursday morning, the most since February, following an initial decline when the quarterly report was released. The company also said it plans to keep increasing share repurchases and dividends.
Cisco shares had closed at $52.96 in regular trading Wednesday, leaving it up 11% this year.
In the period ending in October, sales will rise to about $14.6 billion. That’s in line with analysts’ estimates of $14.57 billion. Excluding certain items, profit will be roughly $1.03 a share, compared with an average estimate of 99 cents.
Cisco’s gross margin has been a bright spot. It’s expected to be 65% to 66% this quarter on an adjusted basis, the company said. Analysts estimated 64.7%.
Sales will be $57 billion to $58.2 billion in fiscal 2024, the company said. That compares with the $58.3 billion analysts had estimated on average, according to a Bloomberg survey.
The growth forecast pales in comparison with the 11% jump in Cisco’s just-ended fiscal year. The company had seen orders stack up during a prolonged period of component shortages. With those parts now available, Cisco has been able to ship hardware — and sell associated software — to meet pent-up demand. But that surge is fading.
In Cisco’s fiscal fourth quarter, which ended July 29, revenue rose 16% to $15.2 billion. Profit, minus some items, was $1.14 a share. That compares with estimates of about $15.1 billion in revenue and $1.06 a share in earnings.
Robbins has been working for years to remake his company as a provider of networking services and software. His management team points to the amount of recurring revenue that it’s building up as an indication that the transition is succeeding.
But Cisco still mostly relies on selling expensive pieces of network equipment — with proprietary software — and that makes it hard to avoid the swings in demand from corporate customers. The company’s sales increase of 11% last year is expected to downshift to just 2% this year.
In a common pattern with tech companies, AI was a major topic of Cisco’s conference call. Cloud service providers have been racing to add computing power to handle services such as OpenAI’s ChatGPT and Google Bard.
Cisco will have a role in that lucrative market, Robbins said, without giving a specific forecast on how big it will be.
“This is a huge opportunity for Cisco,” Robbins said on the call. “We are laser-focused on leading and winning in this space.”
(Updates with share trading)
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