What happened
Shares of giant of network equipment Cisco Systems (NASDAQ: CSCO) fell hard Thursday morning. A solid earnings report was underperformed by weak guidance for the next fiscal quarter, and Cisco’s shares traded 11.3% lower at 10:45 a.m. EDT.
So what
Cisco’s fourth-quarter revenue fell 9% year-on-year to $ 12.2 billion. Adjusted earnings slide 4% lower, landing at $ 0.80 per diluted share. Analysts’ consensus had called for a gain of around $ 0.74 per share on sales of roughly $ 12.1 billion, so Cisco removed these bars with some room to spare.
The lead goals of the first quarter were less impressive. Sales are expected to fall again by about 10%, stopping near $ 11.9 billion. Adjusted earnings were projected to be around $ 0.70 per share, down from $ 0.84 per share year-on-year. Here, your average analyst was looking for revenue near $ 0.76 per share at roughly $ 12.2 billion in topline sales.
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Well what
Cisco has achieved some long-term goals in fiscal year 2020. More than half of the company’s total sales this year came from software and services, reducing the importance of lower-margin hardware sales. And 78% of Cisco’s software revenue was collected in the form of subscription transactions, which exceeded a management target of 66%. The company is modernizing its business model with a view to higher-margin operations and more predictable revenue streams.
That being said, the lead targets for the first quarter came low in the wake of COVID-19 impact on top of a harsh comparison with the unusually strong results of the year-ago period.
“So compared to Q1 of ’20 at the moment, we have even harder comparisons. But they’ll get easier as the year goes on, assuming the pandemic ends,” CFO Kelly Kramer said in Cisco’s fourth-quarter call. “We predict based on what we see, based on order rates, and we feel this is a pretty accurate guide.”
Kramer also chose this moment to retire from her CFO role, with an eight-year term. However, Cisco will not remain without a financial leader. Kramer will stay until the company has found a suitable replacement and will also get their successor on track before they leave.
