Cisco Systems (CSCO) shares have seen a 9.4% decline year to date, performing below the Zacks Index. The computer technology sector’s profitability is at 29.5%. CSCO is facing challenges due to slow network sales, particularly from telecom and cable service providers, along with tough competition. Excessive customer inventory has also hindered growth. In the third quarter of fiscal year 2024, Cisco reported a revenue of $12.7 billion, a 12.8% decrease year-over-year, primarily due to a 18.6% decline in product revenue. Excluding Splunk, product orders remained flat year-over-year. The long-term outlook for Cisco depends on innovation, especially in the AI-driven networking space. The security segment has shown promising growth, with solutions like XDR, Secure Access, and Multicloud Defense attracting customers. Acquisitions like Splunk and Isovalent have strengthened the portfolio, with annual recurring revenue now at $29.2 billion. Partnering with companies like NVIDIA and AT&T has expanded Cisco’s presence in the market. However, the short-term outlook for Cisco remains lackluster, with the stock trading below its moving averages. Revenue and earnings estimates for the fourth quarter of fiscal 2024 indicate a decline. Despite expectations of revenue growth in fiscal year 2025, high interest related to the Splunk acquisition and operating expenses will keep margins under pressure. Cisco is currently trading at a premium compared to the industry, and investors are advised to wait for a better entry point. Cisco’s Zacks Rank is currently at #3 (Hold).
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