Cisco rebounds after forecast shows technology spending to hold up

(Bloomberg) – Cisco Systems Inc., the largest maker of machines that power computer networks and the Internet, gained in late trade after an upbeat forecast showed demand for technology infrastructure was holding up better-than-expected.

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Revenue for the quarter ending April will rise 11% to 13%, Cisco said in a statement on Wednesday. Analysts had forecast growth of around 6%. Excluding some items, earnings will be 96 cents to 98 cents a share compared to a median forecast of 89 cents.

Cisco is benefiting from an order backlog built up during the pandemic and is helping cushion a slowdown in technology demand. Some enterprise customers have also continued to expand their networks to cope with the ever-increasing flow of information, even as they have cut spending in other areas.

Shares rose more than 8% in extended trading after the announcement, though they later recouped those gains. The stock had previously closed at $48.45 in New York, so it’s up less than 2% this year.

The company was repeatedly asked in a conference call with analysts how sustainable the current level of growth is. A key question: will demand subside once Cisco gets enough supply to fill orders faster?

Chief Executive Officer Chuck Robbins said order cancellation rates are low and the overall demand environment remains stable. The company assumes that it will close the financial year with double the order intake. The trends should continue into fiscal 2024, which will help keep the company’s sales on track for growth, he said.

“It’s certainly an uncertain time,” he said. “I don’t want to paint a picture that we’re immune. But we could see how our customers drive projects forward.”

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In Cisco’s fiscal second quarter, revenue rose 7% year over year to $13.6 billion. Earnings, net of a few items, were 88 cents a share.

Cisco also provided guidance for the year that far exceeded analysts’ estimates. Revenue will grow 9% to 10.5% in fiscal 2023, and earnings — excluding certain items — will be $3.73 to $3.78 per share.

Chief Financial Officer Scott Herren cited a “healthy backlog and steps we have taken to improve offerings” to boost the company’s confidence going forward this year.

Robbins has also sought to transform Cisco as a provider of network services and software paid for on a recurring basis, reducing the company’s reliance on one-off sales of expensive equipment.

Increasing shipments of devices will allow the company to bill customers for software connected to the devices, Cisco said.

The lack of some components had prevented Cisco from fulfilling all orders placed. The chip industry, one of the key bottlenecks in a supply chain that has suffered significant disruption during the pandemic, is now experiencing a supply glut. That means electronics manufacturers like Cisco have better access to parts and the ability to negotiate lower prices.

(Updates with additional CEO quotes from sixth paragraph.)

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