The Wall Street Journal
What to watch as the networking-hardware company reports its results
Analysts expect Cisco to post revenue of $12.41 billion, up 4% from a year ago. PHOTO: ALBERT GEA/REUTERS0 COMMENTSByJay GreeneFeb. 13, 2019 5:30 a.m. ET
EARNINGS FORECAST: As of Tuesday, analysts surveyed by Refinitiv expected Cisco to report adjusted per-share earnings of 72 cents. Adjusted results exclude some taxes and costs related to acquisitions.
REVENUE FORECAST: Analysts expected Cisco to post revenue of $12.41 billion, up 4% from a year ago.
WHAT TO WATCH:
SLOWING SECURITY SALES: In recent quarters, Cisco has managed to offset sluggishness in its legacy networking gear with security services. In the fiscal first quarter, Cisco’s security-segment revenue rose 11% to $651 million. But those sales may be flattening, a result of “slowing improvements in the security portfolio,” Morgan Stanley & Co. analyst James Faucette wrote in a recent research note. He added that the departure, announced last month, of Martin Roesch, founder of cybersecurity firm Sourcefire Inc. that Cisco bought for $2.7 billion in 2013, “gives us additional pause.” Slower security growth could hamper other businesses since use of those services can lead to purchases of other Cisco products. Mr. Faucette now expects roughly 11% annual growth in the security segment, down from his previous estimate of 13%. He also downgraded his rating on Cisco from overweight to equal weight and lowered his price target to $49 from $51. Cisco shares closed Tuesday at $47.89, up 31 cents.
DEEP POCKETS: One way Cisco could offset the current tightening in tech spending is to acquire companies in more rapidly growing markets that are related to its own. It beefed up its security offerings with several acquisitions in recent years. With roughly $70 billion in cash, much of it repatriated a year ago after changes to U.S. tax law, Cisco “has the capital flexibility to weather the current enterprise spending decline while still investing in future growth opportunities, both organically and through acquisitions,” RBC Capital Markets analyst Mitch Steves wrote in a recent report. He cites Cisco’s previous acquisitions to boost revenue beyond its switching and routing hardware business.
TARIFF CONCERNS: Cisco continues to navigate the trade dispute between the U.S. and China. Three months ago, Cisco Chief Executive Chuck Robbins said the company hadn’t suffered financially from the 10% tariffs that went into effect in late September on a collection of switches and routers, some of which Cisco makes in China and imports to the U.S. But a recent survey of 75 networking product resellers by UBS Securities suggests that might be changing. While those resellers reported strong Cisco sales for the just-ended quarter, 53% said tariffs shifted demand to other networking-gear makers who haven’t increased prices on Chinese imports as much as Cisco, UBS analyst John Roy wrote in a recent report. Another 9% said the tariff-related price increases were reducing demand for Cisco networking products. And the tariffs on Chinese-produced goods could jump to 25% if U.S. and China negotiators can’t close the substantial gap between the concessions China is willing to offer and what the Trump administration will accept by President Trump’s March 1 deadline for a deal.
Write to Jay Greene at Jay.Greene@wsj.com