Cisco beat analysts’ expectations and posted increased profits during its first-quarter earnings report Thursday, but its lower-than-expected guidance for the second quarter caused its shares to tumble by more than 5 percent in after-hours trading.
It was the first full quarter for CEO Chuck Robbins after he took over the top spot from John Chambers in July. Cisco said it expects second-quarter revenue growth of flat to 2 percent, which was below Wall Street estimates of 5 percent. Cisco said its second-quarter adjusted earnings would be in the range of 53 cents to 55 cents per share, while analysts’ consensus was 56 cents.
“I recognize our Q2 guidance that we just provided is below what the market expected,” Robbins said on the conference call. “In Q1, we saw lower-than-expected order growth driven largely by uncertainty from the macro environment and currency impacts, primarily outside of the U.S.”
On the plus side, Cisco reported first-quarter non-GAAP earnings of 59 cents per share on $12.68 billion in revenue. According to Thomson Reuters, analysts’ forecasts averaged $12.65 billion for revenues and adjusted earnings of 56 cents per share.
Net income in the quarter increased to $2.4 billion from $1.8 billion a year ago, while sales rose 3.6 percent.
Cisco’s switching business revenue increased 5 percent year-over-year to $4 billion in the quarter, while router sales were down 8 percent to $1.8 billion. Robbins said Cisco’s next-generation switch portfolio, which includes its Nexus 3000 and Nexus 9000 switches, along with its Application Centric Infrastructure (ACI), grew 140 percent year-over-year while posting $500 million in revenue in the quarter.
“This performance is much stronger than our competitors that claim they are outpacing and outperforming us,” Robbins said.
Revenue from Cisco’s data center business increased by 26 percent. Robbins said that Cisco’s next-generation data center business would surpass its traditional data center business in the second half of next year.
Software and subscription deferred product revenue increased 36 percent in the quarter. Security deferred revenue increased 31 percent as Cisco made more sales of its next-generation firewalls and threat defense software to its 200,000 firewall customers.
Cisco’s sales of video equipment to service providers was down 2 percent. Enterprise orders were down by 3 percent from the same quarter a year ago.
Partnerships and Acquisitions
Robbins said recent partnerships with Apple, China’s Inspur Group, and Ericsson would provide several vectors for growth during the next few years. (Cisco said on Monday that it expects to post an additional $1 billion in revenue from its partnership with Ericsson.) Also in the quarter, Cisco made four new acquisitions, which included security company Lancope and IoT analytics vendor ParStream.
Robbins also touted Cisco’s engineering teams’ work on new products, as well as Cisco’s work with startups. On the innovation front, he said Cisco would be making a significant announcement next week.
“I feel like we’re well positioned for the second half, and one of the key reasons is we have a good new product pipeline,” he said.