Shares of Cisco (NASDAQ: CSCO) are trading over 6% higher this week after the IT networking company reported better-than-expected fiscal Q4 earnings and revenue, sending its shares up more than 5% in premarket trading. 


How Did Cisco Do in FQ4?

The software maker reported Q4 adjusted EPS of 83c, topping the consensus estimates of 82c per share, as per Refinitiv. Revenue came in at $13.10 billion, beating the analyst consensus of $12.79 billion. 


Net income fell 6% year-over-year to $2.82 billion after the company’s adjusted gross margin shrank to 63.3% from 65.3% in the previous quarter, compared to analysts’ expectations of 64.7%. 


Cisco’s best-performing segment Secure Agile Networks, which designs data-center networking switches, contributed 46% or $6.09 billion of the total revenue, down 1% year-over-year, though above the analyst consensus of $5.86 billion. 


The second-best segment, Internet for the Future, contributed $1.26 billion in revenue, down 10% from the year-ago period, and missing the consensus estimates of $1.36 billion. The Collaboration segment, which contains the web conferencing unit Webex, added $1.16 billion in the quarter, up 2% year-over-year, and topped the consensus projection of $1.10 billion. 


Going forward, Cisco expects 2023 adjusted EPS in the range of $3.49 to $3.56 and revenue growth in the range of 4% to 6%. This compares with analysts’ estimates of EPS of $3.53 per share and revenue of $52.79 billion. Cisco’s revenue in the 2022 fiscal year rose by 3.4%. 


For the current quarter, Cisco expects revenue growth in the range of 2% to 4%, while analysts were looking for flat growth, according to Refinitiv. 


Even though Cisco’s earnings and revenue beat estimates, the San Jose, California-based company is struggling to grow rapidly as its technology peers continue to shift towards cloud and subscription softwares away from physical products.


“After a challenging April due to the COVID-related shutdowns in Shanghai … overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1,” said CEO Chuck Robbins during a post-earnings call.


Elazar Advisors analyst Chaim Siegel said Cisco’s guidance “was good enough because they start lapping stronger year-ago numbers. So the guide for the year and quarter are seen as a sign of confidence by the company.” 


But mounting costs are expected to pose challenges for Cisco in the future as the company continues to spend more on transport and logistics to maintain a steady supply. 


Citi Not Convinced

Citi analysts reiterated their Sell rating on CSCO shares, citing the company’s declining market share against rivals Arista and Juniper. 


The research unit of the bank reaffirmed its price objective of $40 per share for Cisco’s stock, suggesting a downside of around 14%. Citi remains the only firm that holds a Sell rating on CSCO. 


“Our view is current supply chain challenges are more of a headwind for Cisco than for its peers as peers have been ordering and building for upside to gain share from Cisco, and the share losses by Cisco are accelerating. We believe competitors have been able to procure more parts than Cisco, which is hurting Cisco’s sales and market share,” a Citi analyst wrote in a client note.


The analyst also warned investors of Cisco’s persisting challenges like tough comps while the pace of orders continues to slow. 


Furthermore, a Morgan Stanley analyst reflected on Cisco’s report and said he is “leaning cautious” on the company’s results for the fiscal fourth quarter as a brief “improvement in supply creates a difficult setup on FQ1, particularly as forward ordering and deteriorating macro create a challenging setup into FY23.”


While the analyst is optimistic about the company’s Q4 results, his cautious stance on the company’s stock is based on Cisco’s tricky outlook. The analyst said Cisco’s Q1 outlook remains risky due to limited supply chain improvements. 



Cisco shares are trading higher as the FQ4 results and guidance came in better than what investors feared given the slowdown in infrastructure spending, supply chain constraints, and macro headwinds.