Cisco Surprises with Strong Results; Switching Deceleration Continues
Author: Bo Haug, Published: May 18, 2016 at 9:03pm, Category: Earnings Review
Overall Cisco Systems (NASDAQ:CSCO) reported results which beat the street’s expectations, with a particularly strong gross margin, due in part to the extra week of results included in this quarter (approximately +50bp impact on gross margin). Management’s cloud-based platform focus continued to improve collaboration results with revenue up 10% year over year.
While Cisco’s switching business has held up relatively well, given the recent macroeconomic headwinds, white box switches still pose a significant threat in the future. Management has focused on improving programmability and automation to compete with white box pricing, particularly for web-scale players looking to run large data centers at the lowest possible cost. So far this strategy appears to be working, however, the company must continue to execute as their unbranded competitors evolve.
We have updated our earnings model to include this quarter’s results as well as the new guidance provided today for the fiscal fourth quarter of 2016 (refer to the details below).
Management’s guidance – Fiscal fourth quarter 2016
Management kept their revenue guidance range at three points wide, which is consistent with the fiscal third quarter, and one point wider than their historic guidance range. This is an indication of the continued low visibility given uncertainty with current market conditions.
• Revenue growth of 0% to 3% Year over Year (YoY), excluding SP Video CPE Business.
• Non-GAAP gross margin between 63% and 64%.
• Non-GAAP operating margin rate between 29% and 30%.
• Non-GAAP tax provision rate 22%.
• Non-GAAP Earnings Per Share between $0.59 and $0.61.
• GAAP Earnings Per Share between $0.48 and $0.53.
• Share-based compensation expense between $0.05 and $0.06.
• Amortization of purchased intangible assets and other acquisition related costs between $0.03 and $0.05.
Source: Management’s guidance from the F3Q16 earnings call.
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions.
While Cisco’s switching business has held up relatively well, given the recent macroeconomic headwinds, white box switches still pose a significant threat in the future. Management has focused on improving programmability and automation to compete with white box pricing, particularly for web-scale players looking to run large data centers at the lowest possible cost. So far this strategy appears to be working, however, the company must continue to execute as their unbranded competitors evolve.
We have updated our earnings model to include this quarter’s results as well as the new guidance provided today for the fiscal fourth quarter of 2016 (refer to the details below).
Management’s guidance – Fiscal fourth quarter 2016
Management kept their revenue guidance range at three points wide, which is consistent with the fiscal third quarter, and one point wider than their historic guidance range. This is an indication of the continued low visibility given uncertainty with current market conditions.
• Revenue growth of 0% to 3% Year over Year (YoY), excluding SP Video CPE Business.
• Non-GAAP gross margin between 63% and 64%.
• Non-GAAP operating margin rate between 29% and 30%.
• Non-GAAP tax provision rate 22%.
• Non-GAAP Earnings Per Share between $0.59 and $0.61.
• GAAP Earnings Per Share between $0.48 and $0.53.
• Share-based compensation expense between $0.05 and $0.06.
• Amortization of purchased intangible assets and other acquisition related costs between $0.03 and $0.05.
Source: Management’s guidance from the F3Q16 earnings call.
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions.
