Cisco Announces Major Restructuring: Job Cuts and AI Focus Amid Solid Q4 Results

Analysts reset their targets after Cisco earnings

Back in the day -- OK, in early 2002 -- Cisco Systems briefly held the title of the world's most valuable company. It came on Jan. 2, 2002, when Cisco (CSCO) shares closed at $80.06, with a market capitalization $555.4 billion. That just passed the market cap of Microsoft (MSFT) , which ended the day with a market cap of $541.6 billion after shares fell $7.63 to $104.06. The reason was speculation Microsoft would settle its long-running antitrust suit with the Justice Department. The settlement came later that year. Cisco didn't keep its lofty position for too long, however. The peak came as the Dot.Com bubble was about to burst. Exxon Mobil (XOM) and Microsoft competed for many years. But Apple (AAPL) has mostly had the title since 2011, although Microsoft took it back in 2023 and 2024. Related: Stanley Druckenmiller predicted Nvidia's rally; now he has a new target Cisco's market cap, in fact, has declined as Techland has had to weather dramatic changes in technology generally, the stresses of three recessions and the Covid-10 pandemic. The market cap ended Aug. 15 at $195.52 billion, down 65% from the 2000 high. Cisco lost investor favor because its core businesses -- building networking products and services and providing much of the guts of the World Wide Web -- were surpassed by two big forces: Apple's market cap was at $3.41 trillion on Aug. 16; Microsoft's was $3.13 trillion. But on Thursday, as stocks enjoyed a huge rally on decent inflation and jobs news, Cisco was a big star, with its shares up 6.8% to $48.53, its best one-day percentage gain since November 2020. Cisco was the top performer among the 30 stocks in the Dow Jones Industrial Average, ahead of Apple (up 1.4% to $224.72) and Microsoft, up 1.2% to $421.03. Cisco also had had the seventh biggest percentage gain among Standard & Poor's 500 stocks, and it was the third biggest gainer among Nasdaq-100 stocks. All because Cisco reported better than expected fiscal-fourth-quarter results. It said it hopes to generate $1 billion in AI-related business in the next year, and the company will cut 7% of its world-wide work force. Not becuase it wants to cut. Rather, it needs to rework the business to help customers modernize their existing system to get the most from AI. For a change, the company saw "steady customer demand," CEO Chuck Robbins said, and Cisco believes it has the expertise to offer companies secure and reliable networks and related systems to deal with new AI applications. The analysts weigh in Investment analysts, based on public notes, were mixed about Cisco's earnings and prospects. New Street upped its rating on Cisco to buy with the $57 target. Deutsche Bank analysts raised its target to $53 from $52, but it gave the stock only a hold rating. The company is "nearing normalcy," the note said. More Wall Street Analysts: Oppenheimer analyst Ittai Kidron was modestly bullish, keeping an outperform rating on the stock with a $54 price target. He didn't like company's guiding earnings lower in the September quarter. Cisco has too much inventory on the books and must work it off, he noted. But he likes the long-run prospects. Jefferies maintained a buy rating on the stock but its price target from $56 to $53. It has concerned on how the prospects for Splunk, the software company Cisco bought for $28 billion. Splunk's software enables searching, monitoring, and analyzing machine-generated data via a web-style interface. Barclays trimmed its target from $50 to $49 with an equal-weight rating. Cisco's business appears to be stabilizing after deciding to move quickly toward AI-related products. Splunk is helping. Bank of America's Tal Liani reiterated a buy rating on the stock with a $60 target. Cisco's fourth-quarter results were better than expected, he wrote. and order trends are improving. Morningstar analyst William Kerwin called the fourth-quarter results "generally positive" in a conversation with Yahoo Finance UK. He likes the AI initiative, but he warned that Cisco's strength is still "campus and on-premises networks" such as office buildings and campuses, particularly in Wi-Fi and other areas requiring "slower speeds." Related: Veteran fund manager sees world of pain coming for stocks

Cisco Stock Q4: Major Job Cuts With More Focus On AI, Cloud And Security (Upgrade) (CSCO)

Revenue guidance for FY25 suggests 4.1% growth; DCF analysis values Cisco stock at $55 per share, with downside risks including Splunk integration and limited revenue from growth areas. I presented a 'Sell' thesis for Cisco (NASDAQ:CSCO) in my previous article published in March 2024, highlighting their internal issue of inventory destocking and sluggish demands from Telco/Cable markets. The company released its Q4 result on August 14 , showing a 10.3% decline in total revenue. The stock price has underperformed the S&P 500 since my last article. The company announced a second round of job cuts this year and a shift in focus towards growth areas such as AI and cybersecurity. I view these initiatives could act as near-term catalysts for Cisco's earning growth. As the stock price is below its intrinsic value according to my DCF analysis, I am upgrading to 'Buy' rating with a fair value of $55 per share. Cisco announced a major restructuring plan, cutting 7% of total workforce with a total estimated pre-tax savings of $1 billion. Over the earnings call, the management emphasized a strategic shift towards growth areas including AI, Cloud and Cybersecurity. I view the restructuring plan makes strategic sense for the following reasons: As communicated over the earnings call, the product orders grew 14% year-over-year in the quarter. Excluding Splunk, its product orders increased by 6% year-over-year. As indicated in my previous article, Cisco experienced inventory destocking in the distribution channels last quarter. The strong order growth this quarter suggests that the inventory destocking issue is likely behind the company. The strong recovery in the product orders is broad-based, encompassing both the U.S. market and Asia Pacific regions. The management called out the robust growth in the public sector. With inventory destocking moderating, I anticipate Cisco will achieve normalized product order growth in the coming quarters. Additionally, Cisco's investments in AI, cloud computing, and cybersecurity could further enhance overall order growth. Cisco has guided for revenue to be between $55.0 billion and $56.2 billion for FY25, indicating around 4.1% year-over-year growth. I am considering the following moving pieces: Considering all these factors, I anticipate Cisco will achieve 5.7% revenue growth in the near future. Thanks to the restructuring and cost savings, I calculate that Cisco will deliver 220bps margin expansion in FY25. From FY26 onwards, I only model 10bps margin expansion primarily driven by the service business growth and pricing increase. The WACC is calculated to be 7.5% assuming: risk free rate 3.8% ((US 10Y Treasury Yield)); beta 0.7 (SA); cost of debt 7%; equity risk premium 7%; equity $45.5 billion; debt $30 billion; tax rate 19%. Discounting all the future FCF, the fair value of Cisco's stock price is calculated to be $55 per share. I think the near-term risk for Cisco is the integration of Splunk, which Cisco completed in March 2024. Cisco plans to fully integrate Splunk's product and distribution in the near future. While Cisco has significant experience with acquisitions, Splunk is a large deal, and it remains uncertain whether Cisco will face integration challenges. In addition, While Cisco has been investing in cybersecurity, observability and AI, these growth areas only account for a small portion of total revenues. Consequently, it is unlikely that these investments will generate significant growth leverage in the near term. While I consider Cisco to be a low-growth company, I acknowledge and appreciate the company's efforts to reduce operating costs and invest in growth areas such as AI, cybersecurity, and cloud computing. As a result, I am upgrading my rating to 'Buy' with a fair value estimate of $55 per share.

Cisco stock price target raised, maintains neutral stance on solid quarter By Investing.com

On Thursday, Rosenblatt raised the price target on shares of Cisco Systems Inc. (NASDAQ:CSCO) to $58.00, up from the previous target of $56.00, while keeping a Neutral rating on the stock. The firm acknowledged Cisco's recent performance, noting it was a fairly solid quarter for the company. Cisco's financial results showed that organic sales and orders were relatively flat when excluding contributions from Splunk (NASDAQ:SPLK). The firm's stance on maintaining a neutral rating is based on a preference for other companies within the sector. According to the firm, Extreme Networks Inc. (NASDAQ:EXTR) is a more favorable option for Enterprise exposure, and there is a positive outlook for optical transceiver manufacturers that cater to the cloud segment. The investment firm highlighted that Cisco's stock could potentially benefit from an expansion in its multiple as the company continues to grow its software and recurring revenue streams. However, the firm also pointed out some concerns, emphasizing that Cisco's overall performance has been lackluster, with a history of underwhelming mergers and acquisitions integrations. Nevertheless, the integration of Splunk was noted as progressing more successfully than previous endeavors. Rosenblatt expressed skepticism about Cisco's ability to regain market share it has lost to smaller, more agile competitors. The firm indicated that there have been no significant cultural shifts within Cisco that would suggest an upcoming change in the company's ability to win back or take market share in areas where it has been losing ground for some time. The updated price target reflects a balance between potential growth areas and existing challenges faced by the company. In other recent news, Cisco Systems, Inc. reported impressive financial results for the fourth quarter and fiscal year 2024, with Q4 revenue reaching $13.6 billion, surpassing the company's own guidance. The full-year revenue was $53.8 billion. The tech giant also announced a restructuring plan aimed at enhancing growth opportunities and improving efficiency, with a particular focus on AI, cloud, and cybersecurity sectors. Cisco returned $12.1 billion to its shareholders in the fiscal year 2024. The company's Q4 revenue exceeded expectations, achieving a 20-year high gross margin of 67.5%. Cisco announced a restructuring plan, potentially affecting 7% of its global workforce, with a focus on AI, cloud, and cybersecurity sectors. The company's Annual Recurring Revenue (ARR) for Q4 stood at $29.6 billion, a 22% increase year-over-year. Looking ahead, Cisco forecasts Q1 revenue to be between $13.65 billion and $13.85 billion, while revenue for fiscal year 2025 is projected to range between $55 billion and $56.2 billion. These are the latest developments in the company's ongoing efforts to enhance its growth and efficiency. As Cisco Systems Inc. (NASDAQ:CSCO) navigates through its corporate strategies and performance metrics, InvestingPro data and tips provide a deeper perspective into the company's financial health and market positioning. According to InvestingPro, Cisco has a market capitalization of $183.07 billion and trades at a P/E ratio of 15.24, indicating a valuation that is high relative to near-term earnings growth. Despite this, Cisco is a prominent player in the Communications Equipment industry and has demonstrated a commitment to shareholder returns, raising its dividend for 13 consecutive years. The company's stock generally trades with low price volatility, which might appeal to investors seeking stability. However, it is worth noting that short-term obligations exceed liquid assets, suggesting a need for careful financial management. Analysts predict Cisco will be profitable this year, with a gross profit margin of 64.65% over the last twelve months as of Q1 2023. Moreover, the company's dividend yield stands at a compelling 3.52%, with a recent ex-date for the last dividend on July 5, 2024. For investors looking for more detailed analysis, there are additional InvestingPro Tips available, which include insights on Cisco's performance relative to its 52-week price range and its moderate level of debt. These tips, alongside real-time metrics and analytics, can be found on the InvestingPro platform: https://www.investing.com/pro/CSCO.

Five takeaways from Cisco's fourth quarter - SiliconANGLE

Cisco Systems Inc. provided positive numbers in its fiscal fourth-quarter results Wednesday, and there's a story behind those numbers. The networking giant posted a modest revenue beat of $13.64 billion, $100 million more than consensus estimates. Gross margin, boosted by the acquisition of Splunk Inc., came in at a whopping 67.5%, the highest number for Cisco in 20 years. Product order growth rose 14% year over year, 6% excluding Splunk. Looking ahead, first-quarter revenue guidance came in at $13.65 billion to $13.85 billion, in line with the expected $13.76 billion. The full-year fiscal 2025 number is expected to be $55 billion to $56.2 billion, with the midpoint slightly ahead of the $55.6 billion Wall Street was expecting. Investors bid up the stock almost 7% today as a result. But there's more to the story than the numbers. Here are my top five takeaways from the quarter: The past quarter's results disappointed investors, as growth had slowed down. The company explained that after the pandemic, customers had ordered more products that could be implemented, creating what Cisco described as "digestion" issues. Other infrastructure vendors echoed this sentiment, corroborated by many chief information officers I have spoken to. On the earnings call, Chief Executive Chuck Robbins specifically mentioned this when discussing order growth: "We saw steady demand as we closed the year with total product order growth of 14% and growth of 6% excluding Splunk, indicating that the period of inventory digestion by our customers is now largely behind us, as we expected." Is the digestion period over? I'm not ready to call that yet, but I think it's nearing its end. This is also a word of caution to infrastructure vendors. Customers are currently buying artificial intelligence-related infrastructure ahead of their capabilities. Ensure they know how to deploy, have the best practices and can turn purchases into business outcomes, or we will see AI-related indigestion in six months. One of Cisco's myths is that it only acquires and does not innovate. That's far from true. Though Cisco has been an acquisition machine, many of its leading-edge products are homegrown. In the security area, XDR and Secure Access were built in-house, both of which Robbins called out as they gained traction. Hypershield and Hyperfabric are both on the horizon, and the company has big expectations for those products. Though the networking business was down this quarter, orders have returned to growth, and Cisco still holds most of the market share. Most of its networking products run the homegrown Silicon One network processor. The acquisitions also can lead to homegrown innovation. For example, Webex is now loaded with many AI features in collaboration. Its background noise removal, which Webex does better than others, was built on technology from Babble Labs, which it acquired in 2020. Though one could argue it's not Cisco innovation, technology, particularly from tuck-ins, stopped being "acquisitions" and shifted to homegrown after that many years. Cisco's innovation is something the company should highlight more regularly to all stakeholders, including investors. Roll the clock back 20-plus years; I was at a value-added reseller and was selling a bunch of "Cisco on Cisco." Customers and partners inherently believed Cisco voice over internet protocol on a Cisco network had better quality and that Cisco security on a Cisco network was more secure. Sometime in the last two decades, leadership changes, silos and other factors led to many internal silos. Though Cisco may have had a strong "network," "security" or "collaboration" story, it has been a long time since it has had a Cisco value proposition. Today, having a platform strategy is crucial for success in AI, as so many moving parts need to work together. Also, in AI, data is a differentiator. At Cisco Live, Executive Vice President Jeetu Patel (pictured) referred to data as the "new gold" for AI. With Splunk combined with its network telemetry, security intelligence, collaboration insights and observability, Cisco has arguably more AI-related data than any infrastructure vendor. The key is bringing the silos together to create a 1+1=3 scenario. On the call, Cisco mentioned "several $100 million-plus transactions." These included a global logistics company that will use several Cisco products, including switching, routing, Splunk, collaboration and services, to enable automation and new innovations such as AI-powered robots. Another example is a North American airline that's using Cisco switching, routing, wireless, security, collaboration and services to improve operational efficiency and enable future AI and machine learning applications. On an analyst Q&A with Chief Financial Officer Scott Herren, I asked him about the margin implications of these large deals. "The platform strategy will allow us to take advantage of better integration and a better experience for our customers because the products are tightly integrated," he explained. "This isn't about changing margins on a deal-by-deal basis but more about accelerating revenue growth, which gives us better margin leverage across the company." Channel partners have been waiting for this pivot. After the earnings call, I talked with Amrit Chaudhuri, C1's chief growth officer. "C1 is one of Cisco's leading partners, and we are excited about Cisco's shift to a platform strategy," he told me. "Our customers want unified offerings [networking, security, AI and collaboration], allowing us to deliver broader, better-performing solutions." On a related note, on the earnings call, Cisco announced that Jeetu Patel is now the company's chief product officer and will have security, collaboration and networking under him. This is an excellent move, and Patel is the right person for the job, as he has never been afraid to make bold moves to shake things up. Investors have been waiting to see if AI would act as a headwind or tailwind for Cisco. The company has alluded to pending deals with statements such as "line of sight" and references to pipeline. This was the first quarter with meaningful sales. On the call, Robbins stated, "We continue to capitalize on the multibillion-dollar AI infrastructure opportunity. We have now crossed $1 billion in AI orders with webscale customers, with three of the top hyperscalers deploying our Ethernet AI fabric, leveraging Cisco-validated designs. We expect an additional $1 billion of AI product orders in fiscal year '25." Cisco was referring specifically to deals that involve infrastructure to support AI initiatives. In reality, the AI tailwind will be much more significant. Hypershield, XDR, networking and other capabilities are all being powered by AI. Cisco should be able to make the case that a refresh will deliver better outcomes, driving more AI-related sales. The cost-reduction initiatives overshadowed the positive news from the quarter. The company announced a 7% reduction in force, which equates to about 4,000 employees from its global workforce. There are a few points here worth looking at. The first is that Cisco is a very active acquirer with many overlapping job functions when the new company is rolled in. This typically results in headcount reduction to start the fiscal year, so I'm not sure why industry watchers are surprised. In this case, there is an element of cost reduction but also reallocation of talent. On the call, Herren addressed this: "This is a continuation of what you have seen us do. At Investor Day, we talked about having already pivoted on the R&D front, little more than 50% of our R&D spend into those three areas, into AI, cloud and security. Obviously, networking continues to be incredibly important to us and we'll continue to support that space as well. But it's looking for efficiencies as we look across the company really in every way so that we can take those resources and allocate them into the fastest-growing spaces." As long as I've followed Cisco, it has been a financially disciplined company and it continues to do the things it needs to in order to remain a market leader. The company reported the highest operating margin in its history and I would expect more of this in the future. This was a good quarter for Cisco, but the company is still transforming into a software company in many ways. The stock is trading like a hardware company, well below the multiples of a software company, despite subscription being 51% of revenue. The company needs to grow its core networking business, which will help shine a light on the other aspects of its operations. Good start. More to come.

What's Going On With Cisco Systems Stock Today? - Cisco Systems (NASDAQ:CSCO)

Cisco plans to cut 7% of its workforce, or over 6,300 jobs, to refocus on cybersecurity, cloud, and AI. Cisco Systems, Inc. CSCO shares are trading higher in the premarket session on Thursday. Yesterday, the company registered fourth-quarter revenue of $13.64 billion, beating the consensus estimate of $13.537 billion. Cisco reported a 14% year-over-year growth in product orders, though this figure was up 6% when excluding the impact of Splunk. Despite this, total revenue fell by 10%, with product revenue decreasing by 15% and services revenue increasing by 6%. Splunk contributed approximately $960 million to total revenue for the fourth quarter of fiscal 2024. The company reportedly revealed agendas to cut thousands of employees, per a filing. This plan is projected to affect around 7% of Cisco's global workforce. The company anticipates recognizing up to $1 billion in pre-tax charges on its GAAP financial statements, which will include severance, one-time termination benefits, and other costs, primarily in cash. Cisco expects to record approximately $700 million to $800 million of these charges in the first quarter of fiscal 2025, with the remainder to be recognized throughout the rest of the fiscal year. Also Read: Cisco Q4 Earnings: Revenue Beat, EPS Beat, Product Orders Up 14% As Customers Rely On Networking Equipment Maker In New 'Era Of AI' According to Chief Financial Officer Scott Herren, layoffs are not just about strengthening profits, reported Bloomberg. Cisco needs to turn further into cybersecurity, cloud systems and artificial intelligence-related products, so it's releasing resources to do that, Herren said in an interview, Bloomberg added. On a non-GAAP basis, Cisco's gross margins improved, with total gross margin at 67.9% (up from 65.9% a year earlier), product gross margin at 67.0% (up from 65.5%), and services gross margin at 70.3% (up from 67.5%). Non-GAAP operating income was $4.4 billion, reflecting a 17% decline, and the non-GAAP operating margin stood at 32.5%. Cisco reports adjusted earnings of 87 cents per share, beating analyst estimates of 85 cents per share. Price Action: CSCO shares are trading higher by 8.16% to $49.15 premarket at last check Thursday. Image: Shutterstock/ Anucha Cheechang Read Next: Google Says Opening Up Its App Store Is Expensive And Too Much Work, Gets Told By Judge, 'We're Going To Tear The Barriers Down' Market News and Data brought to you by Benzinga APIs