Cisco Systems Q4 Earnings Preview: Navigating Challenges in the Networking Landscape

Cisco Systems Q4 Earnings Preview: Focus on networking environment (NASDAQ:CSCO)

Communications tech giant Cisco Systems (NASDAQ:CSCO) is scheduled to report its fourth-quarter earnings on Wednesday, August 14th, after market close. Despite expectations of a "slight beat," a more reasonable valuation and easier comparisons, estimates for the fiscal first-quarter of 2025 are still "too aggressive," said analyst James Fish from Piper Sandler. "Most investors believe EPS estimates washed out and positioned for beats, but waiting until line of sight to top line beats to step in at greater size, likely in a couple of Q's," according to analysts at brokerage firm Morgan Stanley. The research firm added the network weakness given ongoing inventory digestion is already reflected in valuation, but it is not expecting a meaningful inflection in stock until Cisco can pave a way to top-line beats. "Networking environment muted as some digestion concludes/customers prioritize AI spending," it added. The company had also said in August that it is set to let go "thousands" of employees later this year, in what would mark the networking giant's second round of employee cutbacks this year. Over the last three months, the company has seen significant downgrades to its profit estimates. Its earnings per share estimates have been revised downwards 14 times vs. 6 upgrades. Revenue estimates have seen 16 upward revisions vs. 5 downward moves.

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AI, cloud, Splunk and security are among the subjects expected to come up. Artificial intelligence opportunities. An update on Splunk and the security portfolio. And the effects of cloud demand. These are some of the subjects likely to come up Wednesday during the latest quarterly earnings report from networking giant Cisco Systems. The San Jose, Calif.-based vendor is set to cover results from its fourth fiscal quarter, ended July 27. This would be around the same number of employees Cisco laid off in February. The San Jose, Calif.-based networking giant employed about 85,000 people in July 2023. Following February's cut of about 4,250 employees, this would leave Cisco with just over 80,000 employees worldwide. Analysts on the call may seek Cisco Chair and CEO Chuck Robbins' thoughts on the greater economy, inflation and interest rates. A July report from financial services firm Morgan Stanley noted that the greater economy "remains a factor in the 2H (now causing a ~2% networking spend contraction vs. neutral impact last year) and VARs seeing lower appetite for new large projects in 2H and incrementally more delayed/pushed out projects in 2H." Resellers were more positive than Wall Street on growth expectations for Cisco, with VARs saying 0.7 percent growth and Wall Street estimating a 1.8 percent decline, according to Morgan Stanley. Read on for what to expect from Cisco's next quarterly earnings report.

Cisco plans to slash 4,000 more jobs this week

Cuts reportedly to come as soon as Wednesday's earnings release Networking goliath Cisco will reportedly slash thousands of jobs as it focuses on growing its cybersecurity business and capitalizing on AI demand. According to a Reuters report citing unknown persons "familiar with the matter," the second round of layoffs is expected to be similar in scope, or potentially slightly larger than the last round in February, when about 4,000 employees were laid off. As of July 2023, Cisco employed 84,900 workers. The official announcement could come as soon as Wednesday when Cisco is due to share its fourth-quarter results, sources told the news wire. Cisco had "no comment on rumors" to share. The report comes as Cisco prepares for another challenging quarter. The network vendor previously forecast Q4 revenues of $13.4-$13.6 billion, down about 11 percent year over year. In addition to declining revenues, the firm has also grappled with falling profits. In Q3, Cisco saw its net income plunge 41 percent YoY from $3.2 billion to $1.9 billion. In a bid to fortify its financials, Cisco has made a concerted effort to diversify its offerings. The most recent example of this has been the acquisition of data cruncher Splunk, which employed 7,000 workers as of March when the deal closed. These efforts haven't come cheap, however, adding Splunk's expertise to its portfolio cost Switchzilla $28 billion. Cisco has also been working to establish itself as an AI networking vendor. As we've previously reported, the vast majority of large scale AI deployments utilize Nvidia's InfiniBand network switches and NICs. However, over the past year, we've seen vendors begin pushing Ethernet as an alternative to InfiniBand. At Cisco Live USA in February, Cisco announced a series of hardware and software platforms developed in collaboration with Nvidia designed to peddle its Ethernet kit to enterprises deploying GPU clusters or AI inference and training. Cisco has also thrown its weight behind the Ultra Ethernet Consortium, which aims to develop an Ethernet-based interconnect technology optimized for high-performance computing and AI workloads. You can learn more about the emerging network tech on our sibling site The Next Platform here. The firm hopes to realize $1 billion worth of AI product orders by the end of its 2025 fiscal year which ends in mid 2026. Cisco wouldn't be the only company to announce layoffs in recent weeks. Amid a $1.6 billion loss, Intel earlier this month announced it would lay off more than 16,000 workers or about 15 percent of its global workforce and curb capital expenses in a bid to cut $10 billion in spending in 2025. Meanwhile last week, Dell revealed it was also culling its workforce by a considerable margin as it looks to streamline operations to better unlock "the value of modern IT and AI." While Dell did confirm the layoffs, it isn't clear how deep they'll cut. Some estimates hover in the 10 percent or 12,500 employee range. ®