Cisco Earnings are a Disappointment

Shares of Cisco Systems, Inc. (ticker: CSCO) stock are opening nearly 8 percent lower Thursday after the company reported its sixth consecutive quarter of declining revenues, and its forward guidance fell short of market expectations.

Long-term Cisco investors are hoping that the company’s focus on software and recurring revenue sources will eventually create substantial value, but Cisco has yet to reach a revenue inflection point.

Cisco reported fiscal third-quarter earnings of 60 cents per share, slightly topping consensus analyst expectations of 58 cents. Revenue of $11.94 billion on the quarter also beat consensus estimates of $11.89 billion. However, Cisco’s current-quarter revenue guidance of $11.88 billion to $12.13 billion fell short of the average analyst forecast of $12.51 billion.

As expected, management was optimistic that the company is making progress in its transition.

“I am pleased with the progress we are making on the multi-year transformation of our business,” CEO Chuck Robbins said. “The network is becoming even more critical to business success as our customers add billions of new connections to their enterprises.”

As part of its ongoing restructuring, Cisco also announced it will be laying off another 1,100 employees.

Earlier this week, Morgan Stanley analyst James Faucette upgraded Cisco from “equal weight” to “overweight” and said the company is making the right moves to position itself as a major player in the next era of cybersecurity.

“We continue to see evidence in our channel checks and surveys that security sales are beginning to pull through network equipment upgrades, which we think will improve replacement cycle metrics,” Faucette says. “Cisco continues to drive a mix shift towards software and recurring revenues, and in conjunction with strong firewall refresh activity, will gain share of IT budgets as customers increasingly favor Cisco’s end-to-end portfolio and architecture to improve cybersecurity.”

But while bullish analysts see a light at the end of the tunnel, Wall Street was hoping…

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