Cisco, a leading networking equipment company, is anticipating a challenging fiscal fourth-quarter earnings report due to soft orders from cloud and telecom customers. While Cisco's shares have seen a 13% rally since their previous earnings report in May, other networking hardware providers have experienced mixed results.
Uncertain Outlook for U.S. Carriers
Last month, both Nokia and Ericsson witnessed a decline in share prices as they cautioned that the spending outlook for U.S. carriers appeared weak for the second half of the year. Nokia attributed this to both the macroeconomic environment and customers' inventory digestion.
Weak Bookings Activity from Cloud Customers
Juniper Networks also encountered difficulties as its shares slumped following a warning about weak bookings activity, particularly from cloud customers. The company attributed this to similar factors mentioned by Nokia, including economic issues and high customer inventories.
Arista Networks Shows Promise
Arista Networks, on the other hand, reported strong results for the June quarter; however, the company expressed concerns about a "return to shorter lead times and reduced visibility."
Despite these hurdles, Cisco remains resilient, experiencing a 12% increase in stock value this year. The forthcoming earnings report will reveal how well the company manages to balance softer orders from cloud and telecom customers with stronger sales to enterprises.
Cisco Faces Volatile Environment, Key Details Revealed
Evercore ISI analyst Amit Daryanani has provided valuable insights into Cisco's current position, discussing both challenges and opportunities on the horizon. Daryanani highlights the volatile environment that Cisco confronts, with peers indicating a digestion period for telecoms and cloud customers. However, he also notes that Cisco should give Wall Street a glimpse into the 2024 demand outlook.
The fluctuating nature of Cisco's shares is often influenced by management's remarks on orders and backlog, and this trend has recently worked against the company. Orders slipped by 23% in the April quarter, following a 22% decline in the January quarter. Cisco did manage to exit the April quarter with a backlog twice its normal size due to orders accumulating during recent component shortages.
Daryanani reveals that institutional investors are expecting a year-on-year percentage decrease in orders ranging from the low-to-mid teens. However, despite these challenges, he maintains his Outperform rating and sets a $60 target on the stock.
Looking at the quarter ahead, Cisco has provided guidance indicating revenue growth of 14% to 16%, accompanied by non-GAAP profits per share ranging from $1.05 to $1.07. Analysts generally agree, with a Street consensus expecting revenue of $15.05 billion, a 14.9% increase from the previous year, and profits per share of $1.06. Product revenue estimates stand at $11.5 billion, showing an 18.6% growth, while services revenue is projected to reach $3.5 billion, reflecting a 3.5% increase.
Moving forward, for the fiscal first quarter ending in October, analysts anticipate sales of $14.6 billion, marking a 7% improvement, along with profits per share of $1. As for the fiscal year in 2024, industry experts estimate an impressive revenue figure of $58.3 billion, signifying a 3% growth from the projected $56.8 billion in fiscal 2023.