Cisco Systems: Upbeat Sales Forecast Driven by AI Demand
Key Highlights:
* Cisco projects Q1 revenue of $13.9-$14.1 billion, exceeding analyst expectations.
* Fiscal 2025 revenue target raised to $56 billion.
* Networking gear spending bolstered by AI adoption.
* Acquisition of Splunk accelerates shift to software and services.
* Executive departures and government slowdown impact reported.
Upbeat Sales Forecast
Cisco Systems surged in premarket trading after providing an optimistic sales outlook for the current quarter. The company anticipates revenue between $13.9 billion and $14.1 billion, surpassing analysts' estimates. This surge is primarily attributed to increased investment in computing infrastructure for AI applications.
Increased Revenue Target
Cisco has raised its fiscal 2025 revenue goal by $1 billion to over $56 billion. The revised target exceeds the average estimate of $55.97 billion. This adjustment reflects the growing demand for networking systems as organizations leverage AI.
AI Drives Spending
Corporate clients are enhancing their networking capabilities to facilitate the development and utilization of AI. Cisco's outlook indicates that spending from these customers is offsetting weaker orders from the federal government, which has temporarily suspended projects.
Networking Gear Demand
Cisco's switches and routers play a crucial role in directing data traffic across networks and the internet. The company has also diversified into software and services, with the acquisition of data-crunching business Splunk contributing to this shift.
Product Orders Rise
Product orders witnessed a 29% year-over-year growth in the fiscal second quarter, driven by software and services. Excluding Splunk's contribution, new orders increased by 11%.
Executive Departures
Gary Steele, president of Cisco's go-to-market division, has announced his departure to pursue a CEO position at an undisclosed business.
Government Slowdown
Public sector demand has slowed but is primarily confined to certain government agencies. Cisco's US government revenue primarily originates from the Department of Defense, with a smaller portion from other agencies.
Tariff Mitigation
Despite concerns about potential tariffs on imports, Cisco downplayed the impact, citing a diversified supply chain and contract manufacturers with multiple facilities. Pricing adjustments remain a last resort.
Recurring Revenue Growth
Total sales increased by 9% to $14 billion in the second quarter, surpassing the consensus estimate of $13.9 billion. The increase in recurring revenue from cloud-hosted services has contributed to a less reliance on large equipment sales.
Stock Repurchase Program
Cisco's board of directors approved an additional $15 billion to its stock repurchase program, bringing the total buyback budget to $17 billion.