Cisco Systems Shares Rise on Positive Earnings Forecast

Cisco Systems saw its shares increase by about 4% before the market opened on Thursday. This rise was driven by a positive forecast for the company's fourth-quarter earnings, indicating more stable demand for its products and the benefits of its $28 billion acquisition of cybersecurity firm Splunk.

Previously, Cisco faced slow demand as customers worked through extra inventory purchased during the pandemic and navigated supply-chain issues. However, analysts from Morgan Stanley view the recent order numbers as a positive sign after several challenging quarters.

For the fourth quarter, Cisco expects revenue between $13.4 billion and $13.6 billion, slightly above analysts' predictions. CEO Charles Robbins mentioned that most of the inventory should be installed by the end of July. In the third quarter, product orders remained steady, excluding the impact of the Splunk acquisition, which is an improvement from the 12% decline in the previous quarter.

If the premarket gains hold, Cisco's market value could increase by nearly $8 billion. The company is also poised to benefit from significant investments by tech giants such as Microsoft and Meta Platforms in data centers to support AI tools like ChatGPT.

Cisco reported that three of the top four cloud-computing companies are using its ethernet products, and it aims to achieve $1 billion in AI product orders by 2025. Additionally, the company raised its 2024 revenue forecast to between $53.6 billion and $53.8 billion.

The acquisition of Splunk, completed in March, boosted revenue in Cisco's security segment by 36% in the third quarter. Overall, Cisco's gross margin for the third quarter was 65.1%, up from 63.4% a year ago. The company expects the Splunk acquisition to continue enhancing its gross margins in the future.

Key Points

1. Positive Earnings Forecast: Cisco's shares rose by about 4% due to a positive forecast for its fourth-quarter earnings, with expected revenue between $13.4 billion and $13.6 billion.

2. Impact of Splunk Acquisition: The $28 billion acquisition of cybersecurity company Splunk has significantly boosted Cisco's security segment revenue by 36% in the third quarter, contributing to improved financial performance.

FAQs

Q1. What are Cisco's plans for AI products?

Cisco aims to reach $1 billion in AI product orders by 2025 and is benefiting from big investments by tech giants like Microsoft and Meta in data centers for AI tools.

Q2. Is Cisco a Profitable Company?

Yes, Cisco is a profitable company. It has a strong financial performance with increasing revenues and good profit margins. In the third quarter, Cisco reported a gross margin of 65.1%, up from 63.4% the previous year. The company is benefiting from stable demand for its products and successful acquisitions like Splunk.

Q3. How did Cisco perform in the third quarter?

In the third quarter, Cisco's product orders stayed the same, which is an improvement from a 12% drop in the previous quarter.

Reference

1. https://www.reuters.com/