By Jon Swartz
Cisco Systems Inc.’s stock slid 4.5% in premarket trade Thursday, after the company reported second-quarter profits and revenue that slightly edged Wall Street’s estimates but offered weak guidance.
The computer-networking giant said it racked up net income of $2.9 billion, or 68 cents per share, compared with expectations of $3.2 billion, or 66 cents per share, based on analysts polled by FactSet.
Cisco /zigman2/quotes/209509471/composite CSCO -0.71% said revenue declined 4% year-over-year to $12.01 billion. Analysts polled by FactSet had expected $11.97 billion.
Cisco also declared a quarterly dividend of 36 cents per common share, up 3% over the previous quarter.
“We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions (72% of software sales, up 7% from a year ago),” Cisco Chief Financial Officer Kelly Kramer said in a statement. As they had in the previous quarter, company executives referred to longer decision-buying cycles amid a general slowdown in tech spending.
As macroeconomic issues like Brexit and trade with China stabilize, “uncertainty will dissipate and some of our customers will pick up again,” Cisco Chief Executive Chuck Robbins said in a conference call with analysts after earnings were announced.
Concerns over the coronavirus will have some impact in China, where Cisco gleans about 2% of its total sales, but it won’t blunt what has been a gradual turnaround, Kramer told MarketWatch in a phone interview. “Our (second-quarter) numbers topped estimates, and we are getting back up,” she said.
See also: Cisco confirms fears of a ‘broad-based’ slowdown in tech spending
The San Jose, Calif.-based company offered current revenue guidance that will decline 1.5% to 3.5% from a year ago ($13 billion), and earnings of 62 cents to 67 cents per share (vs. 69 cents a year ago). Analysts polled by FactSet expect third-quarter revenue of $12.6 billion and EPS of 71 cents per share in the current quarter.
What is more, Cisco disclosed it would have a $300 million restructuring charge that would include severance and other costs, with $150 million recognized in the current quarter. A Cisco spokesman declined to specify the number of job cuts.
See also: Opinion: Cisco’s customers are still on ‘pause’ amid coronavirus scare and layoffs
JMP Securities analyst Erik Suppiger told MarketWatch he was “surprised” by a 6% drop in Cisco’s orders year-over-year, the worst he’s seen from the company since the 2008-9 recession. He was especially surprised that North America was the source of the biggest deceleration.
While Forrester analyst Glenn O’Donnell remains convinced Cisco is the “dominant force in enterprise networking,” he acknowledges it faces increasing pressure Arista Networks Inc. /zigman2/quotes/206966450/composite ANET -2.36% and Hewlett Packard Enterprise Co. /zigman2/quotes/201998588/composite HPE -0.20% .
Cisco shares are up 5.1% over the past 12 months. The broader S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.06% is up 22.8% over the past year.