Cisco Earnings: What to Watch

By Rachael King

Cisco Systems Inc. is scheduled to report results after the U.S. market closes Wednesday for the third quarter ended April 29. Here's what you need to know:

EARNINGS FORECAST: Cisco is expected to report adjusted earnings of 58 cents a share for the quarter, excluding items such as stock-based compensation, according to a Thomson Reuters poll of analysts. That compares with 57 cents in the previous year.

REVENUE FORECAST: Analysts see Cisco notching up its sixth consecutive quarterly decline. Analysts expect revenue of $11.89 billion for the quarter, down 0.9% from $12 billion reported a year earlier.

WHAT TO WATCH:

SALES SLUMP: Cisco CEO Chuck Robbins is trying to shift the business from hardware to software and services. The company is making gains in areas such as security and collaboration, but it faces weak customer spending in its core networking hardware. Cisco has forecast third-quarter revenue could decline by as much as 2%. Analysts will be watching to see if software and services revenue can offset declining sales of switches and routers.

FUTURE SECURITY: Over the past few quarters, Cisco's security business has been its fastest-growing segment. It accounts for about 4% of Cisco's total revenue, but it is one of the largest players in the highly-fragmented security market. In the longer term, some analysts see security driving increased spending on networking gear, if customers upgrade hardware to get features like advanced analytics that can detect and contain malicious software within a network. For this quarter, analysts are looking for continued growth in the security business.

SHOPPING SPREE: Cisco has closed four acquisitions this fiscal year and said it would buy two more companies. Some of those deals, such as the agreements to buy networking software company Viptela and artificial intelligence software startup MindMeld, are designed to help Cisco diversify and tap into recurring revenue. Analysts will look for guidance on the pace of future acquisitions and a potential tax policy change by the U.S. administration that would let Cisco repatriate $62 billion in offshore cash.

Write to Rachael King at rachael.king@wsj.com

(END) Dow Jones Newswires

May 17, 2017 05:44 ET (09:44 GMT)

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