Cisco (CSCO) looks set for another strong quarter amid shift to subscription model

For Cisco Systems Inc. (NASDAQ: CSCO), 2022 was a slightly challenging year when the business was hit by the double-whammy of pandemic and economic uncertainty. While the drop in enterprise spending due to inflationary pressures remains a concern, the tech firm looks headed for a strong year ahead, thanks to the stable demand and supply chain recovery.  

The San Jose-based network gear marker’s stock declined ahead of next week’s earnings, after staying on the recovery path for more than three months. But it is likely to change course after the earnings and gather momentum in the coming months. CSCO offers a good dividend yield of more than 3%, which makes it an attractive investment option, especially for income investors.

The Market

Over the years, the company has constantly increased its presence in the overseas market, but more than half of its revenues still come from the Americas. The fast-paced digital transformation across industries bodes well for Cisco, considering the strong adoption of its cybersecurity and subscription-based software services.

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Check this space to read management/analysts’ comments on quarterly reports

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From Cisco’s Q1 2023 earnings conference call:

“Our portfolio is in great shape and our business model is resilient, with 43% of our revenue now recurring, which is very important as we navigate the current macro environment. The hard work and dedicated commitment of our leadership team and employees over the last few years to transform our business model is reflected in the performance we delivered this quarter. Combined with the strength of our balance sheet and our position in the market, we have an excellent foundation for delivering long-term results.”

Q2 Report Due

Market watchers, on average, estimate that Cisco has generated earnings of $0.85 per share in the January quarter, which is up 1% from the prior-year period. The improvement reflects a modest increase in second-quarter revenues to about $13.43 billion. That is broadly in line with the guidance issued by the management at the last earnings. The Q2 report is expected to be released on February 15, in the evening.

In the October quarter, the main network infrastructure business, which accounts for around 50% of total revenues, performed well. The double-digit growth marked a rebound from the past quarters when business was affected by high costs, shortage of components, and supply chain issues. That, along with a 9% growth in the relatively small security division, lifted total first-quarter revenues by 6% to $14 billion. Earnings rose to $0.86 per share and came in above the consensus forecast, as they did in almost every quarter since the company started reporting results.

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MSFT Earnings: Microsoft Q2 profit drops amid weak revenue growth

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CSCO opened Thursday’s session slightly below $47 and traded lower throughout the session. It experienced continued volatility so far this year.