Cisco Systems, a network hardware giant, exceeded analyst expectations in its quarterly report, but still saw its stock decline. The revenue fell by 13% year over year, even with the help of the acquisition of Splunk, and profits also decreased by a similar amount.
The company has been focusing on increasing recurring revenue and reducing its dependence on one-time hardware sales. Subscription revenue accounted for 54% of total revenue in the fiscal third quarter, boosted by the Splunk acquisition. However, Cisco’s revenue suffered in the third quarter due to an excess of products that had not been installed, leading to a decrease in orders in previous periods.
Despite the challenges, product ordering trends have improved. Total product orders increased by 4% year over year in the third quarter, including Splunk, and were flat excluding Splunk. Cisco anticipates that its customers will finish installing existing product inventories by July, leading to a rebound in product orders later in the year.
However, Cisco still expects a significant decline in revenue in the fiscal fourth quarter, projecting revenue between $13.4 billion and $13.6 billion, a drop of approximately 13% year over year. Excluding Splunk, revenue would decline by 18%.
Looking ahead, Cisco’s fiscal year starting in August is expected to show improvements compared to the current year. It may take time for product orders to translate into revenue, but a return to year-over-year revenue growth is anticipated.
While Cisco stock appears to be inexpensive, the company faces challenges as competitors like Arista Networks are gaining ground in certain markets. Despite potential slow growth, Cisco’s valuation is low enough for long-term investors to potentially see decent returns, especially with a 3% dividend yield.
Overall, Cisco stock may not outperform the S&P 500 index, but it could be a favorable long-term investment for those seeking steady returns without paying high premiums for faster-growing companies.
In conclusion, falling revenue due to an inventory correction is impacting Cisco’s stocks, but the company is taking steps to increase recurring revenue and improve product ordering trends. Despite challenges from competitors, Cisco’s low valuation and dividend yield make it an attractive option for long-term investors.
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https://www.fool.com/investing/2024/05/21/is-cisco-stock-a-buy-after-slumping-last-week/