Systems could report a sharp falloff in orders when the networking giant reports October quarter earnings after the close of trading on Wednesday, but its huge backlog should help drive solid financial results.
Like other enterprise computing companies, Cisco (ticker: CSCO) faces a complex macroeconomic environment. The strong dollar is a problem, and so is decelerating enterprise spending. On the other hand, Cisco has an enormous order backlog that built up in recent quarters as the company struggled to meet demand. That should offset any weakening of orders. And problems in the supply chain appear to be getting better after multiple quarters of severe component shortages and high delivery costs.
For the October quarter, Cisco has projected revenue growth of 2% to 4% from the year-earlier quarter. The consensus call on Wall Street is that revenue will be $13.3 billion, up 3.2%, with profit of 84 cents a share. For the January quarter, estimates call for revenue of $13.2 billion, with earnings of 85 cents a share.
Barclays analyst Tim Long, who has an Equal Weight rating and $46 target price on Cisco shares, just a touch above the recent level, thinks both the October quarter results and management’s forecasts for the January quarter will be in line with current consensus estimates. But he also expects to see lingering effects from supply-chain issues and said the backlog of orders from enterprises is at risk of deferrals and cancellations.
Long said that while orders were up 33% in the year ago quarter, and 15% in the July quarter, a tough comparison and “worse than normal seasonality” are likely to result in a 17% year-over-year decline for the latest quarter. Long pointed out that rival
(JNPR) had an estimated 15% decline in orders in its September quarter.
Cisco Systems has been gaining market share in the cloud, where it competes with both Juniper and
(ANET), but Long expects that to moderate. He sees the company’s slice of the market plateauing after doubling from 2019 to 2021.
Last week, Cisco shares came under selling pressure amid speculation that the company is overdue for a significant acquisition, perhaps in security or observability—software for monitoring IT infrastructure. There were also worries that the company’s substantial backlog could be subject to postponements and cancellations.
But Evercore ISI analyst Amit Daryanani last week placed a “Tactical Outperform” designation on Cisco shares, anticipating a positive reception to the earnings report. Daryanani thinks October quarter results will be in line with Street estimates or modestly better, and that management’s forecast for the current quarter will “bracket” current estimates.
“Our checks through the quarter have suggested that Cisco is seeing better demand tailwinds as supply continues to improve across their core campus and data center solutions,” he wrote. “At the same time, we think Cisco has been more aggressive in picking up share in the security and optical space.”
Cisco shares are down 29% for the year.
Write to Eric J. Savitz at firstname.lastname@example.org