Cisco Systems (CSCO) rallied post-earnings after each of its first two earnings reports this year. Can the networking giant make it three in a row?
We'll know on Wednesday, when Cisco releases its July quarter (fiscal fourth quarter) report after the close. On average, analysts polled by FactSet expect revenue of $13.39 billion (up 4% annually) and non-GAAP EPS of $0.81 (up 16%). And for the October quarter -- Cisco provides quarterly guidance in its reports -- the consensus is for revenue of $13.39 billion (up 3%) and EPS of $0.83 (up 11%).
In addition to Cisco's revenue and EPS numbers, here are a few other things for investors to keep an eye on as the company reports and hosts an earnings call at 4:30 P.M. Eastern Time.
1. Product Order Trends
Cisco shares product order data for end-customers and geographic regions on its call. In May, the company reported that its total product orders rose 4% annually during its April quarter. Order growth was particularly strong among enterprise and public sector clients (up 9% and 10%, respectively), and in the EMEA region (up 9%). On the flip side, orders were flat in the Americas and down 13% among service provider clients amid soft capital spending among U.S. service providers.
A pickup in service provider demand would likely be well-received. In July, carrier router archrival Juniper Networks (JNPR) said its service provider business (down 15% annually in Q2 and also skewing towards the U.S.) "remains challenged." On the other hand, Nokia (NOK) reported strong Q2 growth for its carrier router business.
2. Hardware Sales
Cisco's "Infrastructure Platforms" segment, which (among other things) covers its switch, router, server and Wi-Fi businesses, did better than expected in the April quarter, with revenue rising 5% annually to $7.55 billion amid good demand for Cisco's Catalyst 9000 campus switches and related software. For the July quarter, the consensus is for Infrastructure Platforms revenue to grow 5% to $7.84 billion.
Worries about enterprise hardware spending trends are elevated after storage giant NetApp issued a major sales warning on Aug. 1st, while partly blaming trade tensions and related macro concerns. However, Cisco's enterprise hardware sales are (on the whole) a little less vulnerable to cloud infrastructure adoption.
3. Software and Security Sales
It's no secret that Cisco has been investing heavily -- via both internal investments and M&A to grow its software and security revenue, as enterprise spending in both fields continues growing at a high-single digit clip. For the July quarter, the consensus is for Cisco's Application segment revenue to rise 12% to $1.5 billion, and for its Security segment revenue (benefiting from both internal growth and last year's Duo Security acquisition) to rise 18% to $741 million.
Also keep an eye on any new disclosure Cisco makes about how much of its software revenue -- whether in the Applications segment or elsewhere -- now involves subscriptions. In May, CFO Kelly Kramer said 65% of Cisco's software revenue was now subscription-based, up from 56% a year earlier.
4. China and Huawei
With trade tensions having spiked since Cisco's last report, the company could get a question or two on the call about how its Chinese sales are trending. Meanwhile, with the Trump Administration both placing restrictions on U.S. exports to Huawei and pressuring foreign governments not to allow the use of Huawei and ZTE's equipment within 5G networks, the company might also be asked about how much it's benefiting from any sales challenges Huawei is facing.
5. Stock Buybacks
Cisco has been nothing if not an aggressive buyer of its own stock. The company bought back $11 billion worth of shares between its January and April quarters. With a fresh $15 billion having been added to Cisco's buyback authorization in February, and with the company still producing large amounts of free cash flow, there's little reason to think that the company significantly changed its stock-buying ways during the July quarter.