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Cisco shares down 7% on weak outlook

US networking giant Cisco delivered a slightly downbeat earnings announcement, but saw reasons to be cheerful in the mid-term future.

Revenue was down 9% year-on-year for the quarter and down 5% for the full year. Furthermore its guidance was for another 10% revenue decline in the current quarter, which was apparently below investor expectations, hence the share price decline of 7% at time of writing. On the flip side, Cisco managed to derive the majority of its revenue from software and services for the first time and sees opportunities from the coronavirus-induced move towards distance working.

By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” said Cisco CEO Chuck Robbins. “As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways.”

“We executed well in Q4, delivering strong margins despite the very challenging environment,” said Kelly Kramer, CFO of Cisco. “Software subscriptions now make up 78% of our software revenue and remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services.”

“As you would expect, the pandemic has had the most impact on our enterprise and commercial orders, driven by an overall slowdown in spending,” said Robbins on the subsequent analyst call. We are seeing customers continue to delay their purchasing decisions in certain areas, while increasing spend in others until they have greater visibility and clarity on the timing and shape of the global economic recovery.

“Despite this challenging economic environment, the pandemic has also triggered a massive and rapid shift to remote operations and automation to maximize personal safety. With this, many customers are increasingly reliant on our broad portfolio of technologies, resulting in another quarter of strong demand for our Catalyst 9000, security, Webex, and other SaaS-based solutions.”

It seems analysts were basing their expectations for this quarter on the assumption of a greater rebound from the coronavirus lockdown than appears to be taking place. Fears of a second spike in infections have led many governments to err on the side of caution with respect to opening up their economies. It seems unlikely, therefore, that companies will be in any great hurry to stop delaying their discretionary purchases anytime soon.


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