Cisco Systems shares surge following a raised full-year earnings prediction

Cisco Systems, the maker of routers and various other products used for running the internet and computer networks, recently raised its full-year earnings prediction. While the majority of companies in the tech industry have been reporting significant drops in earnings, even changing their estimates negatively and making predictions below the market forecasts, Cisco managed to deliver strong second-quarter results.

The new development was taken by many as an indication that network infrastructure has the potential to resist an economic slowdown, unlike many other aspects of the tech industry.

According to the company, its customers were keeping investments in cloud-related systems, AI, and tools for hybrid work at fairly steady levels. On top of that, the firm also managed to benefit from the easing of COVID-19 measures, which reduced the constraints on supply chains. This was a significant issue in 2022, which led the company to a major inventory buildup. This year, however, the situation has been significantly improved.

Chuck Robbins, the company’s CEO, commented on the firm’s performance, stating that Cisco is better positioned today than it was eight years ago, when he took his position as CEO. The company’s shares surged by 3% after the announcement was made. Before that, the firm also saw a 12% jump in extended trading.

Cisco’s new prediction

As for fiscal 2023, the company expects a 9%-10.5% revenue growth. After adjusting the increase, it would result in earnings of $3.73 to $3.78 per share. This is a significant improvement compared to the previous forecast, which predicted revenue growth of 4.5% to 6.5%, while earnings per share were down at $3.51 to $3.58.

Also, the company’s Q2 adjusted earnings of 88 cents per share, combined with the revenue of $13.59 billion, were both higher than what the market estimates said.

Commenting on the situation, Futuriom’s chief analyst, Scott Raynovich, said that the new development represents very strong growth. More than that, it shows that the firm might be exiting its difficult period, which was primarily caused by problems with supply chains.

Cisco itself said that it had to reduce backlog 6% sequentially. Meanwhile, the RPO (Remaining Performance Obligations) was $31.8 billion at the end of January, which is higher compared to the October figure of $30.9 billion. RPO is an important metric that denotes contractual revenue, which will be recognized in the future.

But, it is worth noting that Cisco’s strong performance came just in time, as this is the period when companies across the US, and even the entire world, are tangled in cost-cutting. Many are laying off employees, with some of the larger firms shutting down entire sectors, leaving thousands of people jobless. Even Cisco has to reduce its workforce by almost 5% in November 2022 in order to deal with the situation at the time.