What’s happening: Cisco Systems is scheduled to report its earnings results for the second quarter after the closing bell on Wednesday, February 12.
What happened: Cisco has topped quarterly estimates for both earnings and revenue for the past two years. However, over the last three months, the Silicon Valley-based technology conglomerate has issued warnings of a tough macro environment and quarterly estimates for its second quarter have been revised down several times.
• The consensus revenue estimate stands at $11.98 billion, representing a 3.8% year-over-year decline.
• The estimate for earnings is 76 cents per share, with 4.1% growth from the same quarter in the previous year.
Why it matters: The networking giant did not start the year on a positive note and its stock has been battered by the market for this.
In November, Cisco warned that its top-line was being impacted by a broad-based slowdown in tech spending. Although terming the situation as a “shallow pause,” the company said the slowdown was not limited to certain regions, rather was being felt across its global markets.
Cisco issued a tepid earnings forecast for the second quarter, while warning of as much as a 5% revenue decline. The company has recently been focusing on strategic buyouts to execute its reorganization plan. It is also expanding into areas like analytics and cybersecurity, while aiming to maintain its leadership in its core business.
On a more positive note, growing instances of security threats at enterprises globally has boosted demand for web and security as well as advanced threat solutions, which has been a tailwind for Cisco. The company’s cybersecurity segment is likely to deliver solid growth this quarter, with offerings from the Jasper and AppDynamics businesses expected to support revenue.
How the shares have performed so far: Cisco’s stock has attracted lukewarm investor sentiment, gaining only 1.5% over the last 12 months, versus a 23% rise in the broader S&P 500 index over the same period. The networking giant’s shares have declined by around 8% since the previous earnings release.
What to watch: With most companies reporting upbeat results this earnings season and the US stock indices breaking record highs, Cisco will be under immense pressure to beat estimates this quarter. Expectations have also been fuelled by the recent earnings releases by other networking companies, including Arista Networks, Extreme Networks and Juniper Networks.
Investors will also look forward to Cisco management's comments on the "shallow pause" and key growth areas during the earnings call, in addition to outlook for the next quarter. The market will watch the US indices, where Cisco is a major constituent.