Cisco Shares Gain After Q3 Earnings Beat As COVID-19 Pandemic Boosts WebEx, Security Demand

Cisco CEO Chuck Robbins said the coronavirus pandemic's work-from-home surge is a 'wake up call' for companies to upgrade dated technology and security infrastructure.
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Cisco Systems  (CSCO) - Get Report shares jumped higher Thursday after it posted stronger-than-expected third quarter revenues, and said work-from-home demand for tech gear and security support during the coronavirus pandemic would help support near-term sales for the network equipment maker.

Cisco said adjusted earnings for the three months ending on April 25, the company's fiscal third quarter, came in at 79 cents per share, up 1.2% from the same period last year but 10 cents ahead of the Street consensus forecast. Group revenues, Cisco said, fell 8% to $12 billion, just ahead of the $11.7 billion analysts' estimate. 

Looking into the current quarter, Cisco said non-GAAP earnings should arrive between 72 cents and 74 cents per share, with an operating profit margin of around 32%, on revenues of around $12.1 billion. WebEx, the company's video conferencing system, had more than 500 million participants in April, and analysts expect trial participants should translate into current-quarter sales.

"When we look at our customers working from home, there is clearly more security that needs to be deployed," CEO Chuck Robbins told investors on a conference call late Wednesday. "And then the question about when they return to the office and (the question of) what does that mean to the infrastructure supporting their campus environments is certainly one that we're going to be watching."

"I have had a lot of customers who are not at the center of this crisis who realized during this pandemic that they have a fair amount of technical debt and they have a lot of aged equipment and this is a wake up call that is going to actually give us air cover to talk to our senior leadership team about upgrading and building out a more robust modernized infrastructure," he added.

Cisco shares were marked 5.75% higher in early trading Thursday to change hands at $44.27 each, a move that would trim the stock's year-to-date decline to around 7.7%.

"While business activity was solid through March, the spread of COVID-19 impacted April and the July quarter outlook," said Oppenheimer analyst Ittai Kidron, who holds an outperform rating on the stock with a $46 price target. "As expected, revenue and order patterns were weak across key product areas (switching, WLAN, routing, IP endpoints, etc.) and regions (APJA, BRIC+M, EMEA)." 

"Nonetheless, there were a few positive product areas (Webex, AppDynamics, Catalyst 9K) and margins (gross and operating) were strong benefiting from lower memory prices, higher software mix, and OpEx controls," he added. "The road ahead will likely remain challenging, yet we believe Cisco is on solid footing with a strong portfolio, balance sheet, and cost discipline."