That probably spells tempered expectations going into Cisco’s January quarter (fiscal second quarter). Currently, the consensus among analysts polled by FactSet is for revenue of $11.97 billion (down 4% annually) and non-GAAP EPS of $0.76 (up 4% with the help of stock buybacks).
For the April quarter -- Cisco provides quarterly guidance within its reports -- the consensus is for revenue of $12.63 billion (down 2.5%) and EPS of $0.80 (up 2.5%).
Here are a few things to watch as Cisco reports after the bell on Wednesday and hosts an earnings call at 4:30 P.M. Eastern Time.
1. Service Provider Demand
Weak demand from telcos has been weighing on Cisco’s sales lately. Total service provider product orders, a large portion of which are believed to involve routers, fell 13% annually in the October quarter, following a 21% drop in the July quarter. Comments made this earnings season by hardware and chip suppliers with strong exposure to this space, such as Juniper Networks (JNPR) - Get Report, Nokia (NOK) - Get Report and Xilinx (XLNX) - Get Report, suggest telecom capital spending remains under pressure (mobile infrastructure spending particularly).
In addition to its service provider orders, keep an eye out for any comments made the initial reception Cisco has seen for its efforts (announced in December) to supply switching/routing processors and optics on a standalone basis to major cloud service providers, a group of companies that have grown their capex considerably in recent years and which Cisco has relatively limited exposure to.
2. Enterprise Hardware Demand
Enterprise hardware sales have also been under pressure lately. In the October quarter, Cisco’s enterprise product orders fell 5%, while its giant Infrastructure Platforms segment, which covers its core hardware franchises and related software, saw revenue drop 1% thanks to both corporate and service provider sales pressures.
Infrastructure Platforms has a low bar to clear for the January quarter: The consensus is for its revenue to be down 8% to $6.58 billion. Cisco’s Catalyst 9000 switch family, which launched in mid-2017 and supports a slew of innovative software features, has been a bright spot for the segment.
3. Security Sales
Though much smaller than Infrastructure Platforms, Cisco’s Security segment was a strong point in the October quarter, with revenue growing 22% thanks to both organic growth and the Oct. 2018 Duo Security acquisition. With Cisco having lapped the 1-year anniversary of the Duo deal, the consensus is for Security revenue to be up 13% in the January quarter to $742 million.
4. The Shift Towards Software
While enterprise IT and telecom hardware spending are under pressure, the good times continue for the enterprise software market. That in turn might help Cisco beat subdued analyst forecasts for its Applications segment, which among other things covers the AppDynamics application performance monitoring (APM) business and the WebEx collaboration software business. Currently, the consensus is for Applications revenue to be down 3% to $1.43 billion.
In November, Cisco disclosed that 71% of its software revenue (whether from Applications or other segments) involved subscriptions, up from 59% in the year-ago quarter. That number might have risen again in the January quarter.
5. Stock Buybacks
Cisco spent $768 million on stock buybacks in the October quarter -- a relatively modest sum by the company’s standards. With Cisco possessing $15 billion in net cash (cash minus debt) and expected to produce over $13 billion in free cash flow this fiscal year, the company has a lot of leeway to spend more on buybacks if it wishes.