Cisco improves income in fiscal second quarter

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Cisco buys Exablaze.

On Wednesday, networking equipment giant Cisco Systems revealed its earnings for the second fiscal quarter of 2020. On balance, the firm reported mixed results with a year-over-year decline in revenue but an improvement in earnings per share. Moreover, the company offered guidance for a near-term drop off in sales but a long-term recovery.

Cisco’s FQ2 2020 Results

In the period ending January 25, Cisco brought in $12 billion in sales. As such, the firm fell short of its FQ2 2019 revenue of $12.4 billion by 4 percent. However, it did beat Zacks Investment Research’s forecast by .16 percent.

In addition, the manufacturer managed to pump the breaks on the significant revenue declines it experienced last quarter.

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Cisco posted adjusted earnings of $3.3 billion in the fiscal second quarter, which is even with its income the year previous. Moreover, the corporation reported earnings per share of $.77, up 5 percent annually. That means the company exceeded analysts’ profit expectations of $.76 per share.

Also, the equipment maker improved its adjusted gross margin from 64.1 percent in FQ2 2019 to 66.4 percent last quarter.

The networking gear manufacturer experienced a 9 percent downturn in product purchases, but a 5 percent uptick in service sales. Notably, the firm’s security segment saw a 9 percent year-over-year revenue increase.

Cisco Near and Long-Term Outlook

Cisco offered fiscal third-quarter guidance indicating an annual sales drop off of between 1.5 percent and 3.5 percent. That translates to revenue of $12.80 billion to $12.54 billion. Moreover, the company is predicting FQ3 2020 earnings per share of between $.79 and $.81.

Comparatively, Zacks offered an FQ3 2020 forecast of $12.80 billion against earnings per share of $.81.

Cisco CEO Chuck Robbins attributed his firm’s underperformance to delayed U.S. equipment purchasing and international headwinds. Specifically, the executive pointed to the British exit from the European Union and the Sino-American trade war as reasons for falling sales in those regions. Besides, he explained those factors, as well as the coronavirus outbreak, will have a drag on its income this quarter.

Nevertheless, Robbins believes his company will rebound soon, describing its lagging sales as “a pause and not a cliff.” Indeed, the U.K. has completed Brexit, and the U.S. and China recently inked a new trade deal.

Furthermore, Cisco has recently taken steps to ensure its hardware remains cutting edge. Last July, the corporation purchased optical network component maker Acacia Communications for $2.6 billion. Also, the firm bought low latency gear manufacturer Exablaze in January.

As such, Cisco will be able to provide its clients with hardware that offers best-in-class security and performance. In addition, the company now sells its switch chips as stand-alone products, which should improve its products once its primary international markets stabilize.

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