Late trading saw Cisco Systems Inc., the top producer of computer networking equipment, plunge after delivering a disappointing forecast. This is a sign of potential cutbacks in corporate technology spending.
Sales are anticipated to be $12.6 billion to $12.8 billion for the period ending in January, declared the company in a statement on Wednesday. These numbers fell short of the $14.2 billion analysts had predicted. Profit is projected to fall within a range of 82 cents to 84 cents a share, compared to a forecast of 99 cents once certain items are excluded.
The aftermath of this announcement was a drop of as much as 16% in extended trading, later recovering slightly to an 11% plummet. The company’s shares had previously increased by 12% in 2023, closing at $53.28 on Wednesday.
The effect of slowing orders for networking hardware on growth is evident in Cisco’s report. Attempts by Chief Executive Officer Chuck Robbins to reduce the company’s reliance on one-time equipment sales are hindered by declines in corporate spending budgets. However, Robbins maintained that the macroeconomy had not weakened. Instead, the 21% decrease in orders in the first quarter was attributed largely to customers postponing new orders to install already received gear.
The company predicted that the weak order environment will persist, estimating that “there are one to two quarters of shipped product orders still waiting to be implemented by its customers.” Nevertheless, Cisco expressed optimism that sales would pick up again in the latter half of the year
Cisco hopes to boost its business diversity by acquiring data-crunching software maker Splunk Inc. for $28 billion, a purchase anticipated to be finalized by the end of the third quarter of calendar 2024. The company also anticipates a 65% to 66% adjusted gross margin and an outlook of $53.8 billion to $55 billion in fiscal 2024 sales, lower than the previous projection.
In the quarter ending October 28, Cisco reported an 8% increase in revenue to $14.7 billion and a profit of $1.11 a share. This was the third consecutive strong quarter, influencing the company’s current position.
Cisco also mentioned that it is benefiting from artificial intelligence system spending, securing about $1 billion worth of orders in that area. Furthermore, the company is making strides in generating more revenue from software and services, with 44% of sales now originating from recurring sources.
This marks substantial progress for the company, as it continues to prioritize the shift from equipment sales to software and services. These strategic moves are expected to yield a more stable and diversified revenue stream in the future, in line with the company’s long-term objectives.
