Cisco rises as networking equipment demand rebound takes root

May 16, 2024 – 4:58 AM PDT

(Reuters) – Cisco Systems shares rose about 4% before the bell on Thursday after an upbeat fourth-quarter forecast signaled further stabilization in networking equipment demand and benefits from its $28 billion deal for cybersecurity firm Splunk.

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The world’s largest networking equipment maker (CSCO.O) had struggled with sluggish demand as customers adjusted piled up inventory from frenetic buying during the pandemic, as well as lingering supply-chain snags.

“After the past couple of quarters of meaningful inventory digestion headwinds, we viewed these order numbers as a positive,” Morgan Stanley analysts said in a note.

Cisco on Wednesday forecast fourth-quarter revenue between $13.4 billion and $13.6 billion, compared with analysts’ estimates of $13.23 billion, according to LSEG data.

“We currently expect customers to complete the installation of the majority of their inventory by the end of our fiscal year in July,” said CEO Charles Robbins on a post-earnings call.

Product orders were flat in the third quarter, excluding the impact of the Splunk buyout, compared with a decline of 12% in the previous quarter.

Cisco was set to add almost $8 billion to its market value on Thursday, if premarket gains held.

The company is expected to benefit from the billions of dollars U.S. technology giants such as Microsoft (MSFT.O) and Meta Platforms (META.O) are spending on data centers to support chatbots like ChatGPT, which need heavy computing power.

Cisco said on Wednesday three of the top four cloud-computing companies were deploying its ethernet, as it reiterated a target of $1 billion worth of AI product orders in fiscal 2025.

The company raised its 2024 revenue forecast to a range of $53.6 billion to $53.8 billion, from its previous expectations for a range of $51.5 billion to $52.5 billion.

SPLUNK BOOST

Cisco completed its acquisition of Splunk in March as part of its efforts to reduce dependence on its core networking business.

Including Splunk, revenue in Cisco’s security segment jumped 36% in the third quarter.

Total third-quarter gross margin was 65.1%, compared with 63.4% in the year-ago period.

Cisco had said that the acquisition will accelerate gross margin expansion in the first fiscal year after the deal’s close.

Reporting by Arsheeya Bajwa in Bengaluru; Editing by Sriraj Kalluvila

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