Cisco drops on poor guidance, says China business dropped 25%

Cisco shares fell by as much as 7% after hours on Wednesday after the company reported weaker-than-expected guidance. It had already dropped 4% during the day on a disastrous day for stocks.

Here’s what the company reported:

• Earnings: 83 cents per share, excluding certain items, vs. 82 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $13.43 billion, vs. $13.38 billion as expected by analysts, according to Refinitiv.

Revenue grew 6% on an annualized basis in the quarter, according to a statement.

The majority of Cisco’s revenue comes from sales of data center networking products, including switches and routers. That business is represented by Cisco’s Infrastructure Platforms segment, which came up with quarterly revenue of $7.88 billion, above the $7.84 billion consensus among analyst polled by FactSet.

The Applications segment had $1.49 billion in revenue, in line with the $1.49 billion FactSet analyst consensus. Cisco’s Security business contributed $714 million in revenue, less than $739.9 million FactSet consensus estimate.

Heading into the report, some analysts expressed concerns about Cisco given storage hardware company NetApp’s decision to lower its fiscal-year guidance at the beginning of August.

“We expect a large portion of NetApp’s headwinds to have limited implications for Cisco, except for cautious spending from large accounts which we believe Cisco is well positioned to offset through a strong product cycle and broader customer exposure,” JP Morgan analysts led by Samik Chatterjee wrote in a Monday note.

Cisco’s broad customer base could help the company weather softer macroeconomic conditions, wrote the JP Morgan analysts, who have an overweight rating on Cisco stock.

“We did see in July some slight early indications of some macro shifts that we didn’t see in the prior quarter,” Cisco CEO Chuck Robbins told analysts on a Wednesday conference call.

In the quarter Cisco announced new Wi-Fi products and a plan to acquire Acacia Communications for $2.6 billion.

As for guidance, Cisco said it expects to report 80 to 82 cents in earnings per share, excluding certain items, and flat to 2% revenue growth in the first quarter of its 2020 fiscal year. Analysts polled by Refinitiv were looking for 83 cents in earnings per share, excluding certain items, and $13.40 billion in revenue, or 2.5% growth, for that period.

Shares of the company are up 17% since the beginning of the year.

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