(Bloomberg) — Cisco Systems Inc. gained about 5% in extended trading after giving strong sales and profit forecasts for the current quarter, indicating that customers are starting to invest again in their computer networks.
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Sales will be between $13.4 billion and $13.6 billion in the fiscal fourth quarter, which ends in July, the company said in a statement Wednesday. That compares to an average analyst estimate of $13.5 billion. Excluding certain items, earnings will be 84 to 86 cents per share, compared to a forecast of 84 cents.
The outlook sent shares as high as $54.11, before paring some of the gains. They previously closed at $49.67, down 1.7% for the year.
CEO Chuck Robbins continues his efforts to remake Cisco as a provider of networking services and software – a strategy that included the acquisition of Splunk Inc. for $28 billion. This change has not yet completely insulated the company from fluctuations in corporate hardware purchases. and customers of telecommunications companies.
Cisco reported a 4% increase in orders last quarter – an indicator of future sales – including Splunk. Furthermore, they were stable, but analysts feared a decline. Orders had fallen 12% in the previous period.
For the full fiscal year 2024, revenue will be between $53.6 billion and $53.8 billion, compared to the average estimate of $53.6 billion. Sales will increase by between 5% and 5% in fiscal 2025, Cisco said.
“Customers are consuming equipment delivered over the past few quarters in line with our expectations,” Chief Financial Officer Scott Herren said in the release. “We are thus seeing a stabilization of demand. »
In a conference call with analysts, Robbins said customers would have finished clearing their backlog by July.
Cisco’s adjusted gross margin – the percentage of sales remaining after deducting the cost of production – is expected to be between 66.5% and 67.5% this quarter.
During Cisco’s fiscal third quarter, ended April 27, revenue contracted 13% to $12.7 billion. Earnings were 88 cents per share, minus some items. Analysts had forecast revenue of $12.66 billion and earnings of 82 cents per share.
Cisco highlighted progress in improving its relationships with large data center operators. These so-called hyperscalers – companies such as Microsoft Corp. and Alphabet Inc.’s Google — pioneered the use of in-house networking equipment, saving Cisco some cloud computing expenses.
But now Cisco is profiting from its spending on AI infrastructure. The company has a “line of sight” on $1 billion in orders from hyperscalers and other AI investors, according to Cisco’s Herren.
Cisco completed its acquisition of data analytics software maker Splunk during the quarter. This addition added $413 million in revenue.
The Splunk buyout adds to Cisco’s deferred revenue, helping it move from a reliance on one-time purchases to long-term contracts for software and services. The company now has recurring revenue that represents more than half of total sales and remaining performance obligations of nearly $39 billion, according to Herren.
Splunk CEO Gary Steele will become president of Cisco and focus on its “go-to-market” strategy. Meanwhile, Jeff Sharritts, the company’s director of clients and partners, will leave in mid-July.
“Steele is well known for his operational excellence, and in this new role, he will work closely with Robbins to define and execute Cisco’s strategic plans and objectives,” the San Jose, Calif.-based company said.
(Updated with CFO comments in 11th and 12th paragraphs.)
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