Cisco has released financials for the final three-month period of 2018, beating market expectations for the 21st consecutive quarter.

Jamie Davies

August 15, 2019

3 Min Read
cisco

Cisco has released financials for the final three-month period of 2018, beating market expectations for the 21st consecutive quarter.

He might not be the most flamboyant of CEOs, but like Satya Nadella over at Microsoft, Chuck Robbins is letting the business do the talking. Since his appointment in 2015, the vendor has gone from strength-to-strength, with these results adding another feather to the cap.

Looking at the financials, total revenue for the three months reached $13.4 billion a 5% year-on-year increase, while net income was down 42% to $2.2 billion. Although the latter figure might shock some, CFO Kelly Kramer has suggested this is only a blip on the radar, with the hole attributable to US Treasury Regulations issued during the quarter relating to the Tax Cuts and Jobs Act.

In terms of the numbers across the year, total revenues stood at $51.7 billion, up 7%, while net income was $13.8 billion, an increase of 9% compared to the previous year.

However, it is not all glimmering news.

“Let me reiterate our guidance for the first quarter of fiscal ’20,” Kramer said during the earnings call. “We expect revenue growth in the range of 0% to 2% year over year.”

Considering the ambitious plans set-forward by the business over the last few years, this would not seem to be the most generous of forecasts. The dampened forecast might well disappoint a few investors. What is worth noting, it that despite having strong and stable foundations, Cisco is not immune to global trends.

Looking at the telco customers, Asia is demonstrating weakening demand for Cisco. The China telco business is weakening, while demand in India has dropped off as aggressive network roll-outs in 2018 are not being replicated today.

In terms of working with enterprise customers, the team had two major software deals in 2018 which are “tough to compare against”, according to Robbins, while the Chinese and UK markets are demonstrating weakened positions thanks to events which are outside of the control of the team. No prizes for guessing what those events might be.

What is worth noting is that while it is easy to point the finger of blame towards China in the current political climate, take    this explanation from Robbins and Kramer with a pinch of salt. Cisco’s revenues in China might have declined by 25% this year, though the market only accounts for less than 3% of total revenues.

Cisco is no different from any other vendor in the telco space right now. It might be performing healthily, though it is reliant on telcos getting their act together and pushing network investments forward. The 5G bonanza to boost profitability in the telco ecosystem is yet to appear, though there are hints it might be just around the corner (as always…).

“I would say don’t anticipate that being a huge profit driver off of the 5G transition that’s going to come when they build more robust broader 5G infrastructure where they’ll deliver enterprise services and that’s going to come after they do the consumer side,” Robbins said.

“So, it’s a bit unclear when that will take place. I’d say we’re not modelling and don’t anticipate any significant improvement in this business in the very near term.”

This is where the 5G hype can be slightly misleading. There are of course telcos who are surging ahead, but these are only a fraction of the networks around the world. It is promising, but the market leaders or fast followers are not going to flood vendors bank accounts with profits.

There are numerous markets who are still in the testing phases of 5G, with the telcos aiming to figure out the commercial business model to make the vast investments in future-proofed markets work. When we start getting to the steep rises of the bell curve, this is where the profits will start rolling in.

That seems to be the message from the Cisco management team today; we’re in a healthy position, but don’t expect this quarter to blow anyone’s mind away. The 5G euphoria is on the horizon, but investors will have to wait just a little bit longer.

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