Cisco’s sales slip, but still top forecasts

Networking tech giant shifting to more software and cloud-based services

SAN JOSE — Cisco Systems on Wednesday reported fiscal second-quarter sales that fell from a year ago, but still managed to top Wall Street’s estimates as the networking technology giant put more emphasis on cloud-based services and analytical data.

For the three months that ended Jan. 28, Cisco said it earned 47 cents a share, on $11.6 billion in sales. In the year-earlier period, it had earned a profit of 62 cents a share, on revenue of $11.93 billion.

It was the fifth-straight quarter of year-over-year revenue declines for Cisco, as weak spending from service providers continued to impact the company’s sales.

Excluding one-time items, Cisco earned 57 cents a share in its second quarter.

Analysts surveyed by Thomson Reuters had forecast Cisco to earn 56 cents a share on $11.55 billion in sales.

On a conference call to discuss Cisco’s results, Chief Executive Officer Chuck Robbins said he remains “confident” in the company’s ability to maintain strong momentum as it transitions more of its business toward areas like security and cloud-based services.

Cisco’s main business lines, its switching and routing products, remained the company’s biggest revenue generators,

but both continued to decline. Sales from switching gear came in at $3.3 billion in revenue during the quarter, but that was 5 percent less than a year ago. And routing revenue fell by 10 percent from last year’s second quarter, to $1.82 billion.

Those declines are why Cisco has taken steps to branch out into other business areas, and those divisions are growing. Security revenue rose 14 percent to $528 million, while wireless sales climbed 3 percent to $632 million and collaboration revenue rose 4 percent, to $1.06 billion.

Rob Enderle, director of tech research firm the Enderle Group, said Cisco’s results reflect its ongoing shift toward more software and cloud-based services, and that the company needs to shake off its trend of reporting declines in revenue in order to regain some confidence from investors and customers.

“These things always take longer than expected. For Cisco to be a high flyer again, they need to show more consistent top-line growth, and that is more likely once their software efforts mature and become more dominant,” Enderle said. “There are some big waves coming that will potentially have a massive increase on Cisco’s top and bottom lines, but they won’t really take off until after this year.”

During the quarter, Cisco said it would acquire AppDynamics — a developer of software used in network analysis and in measuring businesses’ performance — for $3.7 billion. That deal, announced in late January, came just days before AppDynamics was scheduled to go public. Cisco also said that for its fiscal third quarter, it expects to earn between 57 cents and 59 cents a share, excluding one-time items. The company said sales should break even with, or fall by as much as 2 percent from, the $12 billion it reported a year ago.

Cisco shares initially dipped in after-hours trading following the release of the company’s results, but they were up more than 2 percent, at $33.50, by 6:30 p.m. PST.