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Opinion: Cisco made it through a pandemic pothole, and the stock is driving higher

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Amid a sea of earnings disappointments this quarter, Cisco Systems Inc. surprised Wall Street on Wednesday as it moved beyond pandemic supply-chain issues to gain its best handle on demand in recent years.

Cisco executives
reported fiscal second-quarter earnings that blew past expectations for the holiday quarter, raised their outlook for the next quarter and full year, and raised the company’s quarterly dividend by a penny Wednesday. They pointed out that the second-quarter revenue of $13.59 billion was its second-highest quarterly revenue ever, and that 44% of its total revenue came from subscription revenue, of which software was a big part.

“While the environment we’re operating in remains dynamic, Cisco is better positioned today than at any time since I became CEO almost eight years ago,” Chief Executive Chuck Robbins told analysts on a conference call. “We have reshaped and transformed the company and our portfolio, while remaining highly disciplined both financially and operationally.”

Wall Street agreed, sending Cisco’s shares up almost 11% initially in after-hours trading, before they fell back to gains of more than 3% — still a strong move for a company with a market capitalization of roughly $200 billion.

Also see: Cisco gear getting into Russia is ‘disappointing’ and ‘frustrating,’ exec says

Cisco has been slowly moving many of its customers to a recurring subscription model since it first launched its Catalyst 9000 in 2017, a software-centric switch that has a subscription and long-term contracts. But executives also talked about how Cisco had revamped some of its products that got bogged down in supply-chain issues during the pandemic, when the shortage of some components marred its ability to meet demand.

“[Due to] aggressive action by our supply-chain teams to redesign hundreds of our products, we increased product deliveries and now see significant reductions in customer lead times,” Robbins said.

Executives also said Cisco saw better demand at the corporate data center, also referred to as the private cloud, for its products.

“The pandemic was a great educator for our customers about the need to maintain modernized infrastructure,” Robbins said. He said that in the enterprise and commercial space, Cisco saw double-digit sequential growth, and that public sector, or government, was actually higher than historical rates.

Even as large tech companies are cutting back and laying off staff, Cisco is seeing customers continue to spend on their technology projects.

“I don’t want to paint a picture that we’re immune,” Robbins said when asked about the macroeconomic uncertainty and how layoffs across industries were affecting Cisco’s business. “I don’t want to paint a picture that every customer’s spending everywhere on everything, but we’ve been able to maintain and continue to see our customers moving forward with projects.”

That is good news not just for Cisco, but the entire tech economy, which will depend on other businesses still looking to upgrade after the pandemic panic for more technology. Cisco has come through this bad economy in much better shape than most tech titans, and that success could be a harbinger of more to come, which is a welcome sight in this downcast earnings season.


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