When Cisco Systems Inc. (CSCO - Get Report) reports fiscal fourth-quarter results after the closing bell on Wednesday, it'll prove whether or not the Trump administration's moves are really weighing on its business.
The networking giant warned in May that revenue would fall 4% to 6% year-over-year during the fourth quarter, as a result of weak product orders in its public sector business, particularly those that come from the federal government. Cisco's orders in the public sector unit fell 4% during the quarter.
CEO Chuck Robbins said at the time that the headwind was a "pretty significant stall...with the lack of budget visibility."
Cisco executives said that planned cuts meant many departments in the federal government weren't sure what their budgets were going to be, so they held off on spending. Trump's rocky relations with Mexico also weighed on Cisco's business there, with service provider orders down 49% year-over-year during the last quarter.
On Wednesday, Wall Street will be paying close attention to any guidance given by Cisco, performance of its security and software businesses, as well as if it continues to see a decline in public sector orders.
For the fourth quarter, analysts are looking for earnings of 61 cents per share and $12.07 billion in revenue. Total product sales are expected to come in at $8.98 billion.
Cisco has increasingly turned its focus to new growth areas such as security and cloud computing, amid declining demand for its routers. Sales of its legacy networking gear have declined year-over-year for the past six straight quarters. Revenue in switching, Cisco's largest business, is expected to be $3.56 billion during the fourth quarter.
Jim Cramer chats about Cisco, but also tons of other stocks.
The shift toward software subscription and other recurring revenue streams weighed on the company's results in the third quarter. Wall Street will be looking to see if that also shows up in Wednesday's results.
Cisco proved just how challenging this shift has been at its 2017 analyst day in June. The company guided for 1% to 3% annual revenue growth and mid-single digit annual EPS growth during the next three to five years, which are below the growth targets it set out in 2013.
The company's security business has remained a bright spot amid the overall transition toward recurring revenues. Cisco recently benefited from a jump in customer spending following the string of ransomware attacks, alongside other cyber security players like Juniper Networks Inc. (JNPR - Get Report) , Arista Networks Inc. (ANET - Get Report) and Fortinet (FTNT - Get Report) . The segment climbed 9% year-over-year in Cisco's fiscal third quarter, representing the highest annual growth rate among all of Cisco's businesses except for its wireless unit, which grew 13% from one year earlier.
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