Cicso Systems: Bad, and good, news

Networking hardware specialist Cisco Systems (Nasdaq: CSCO) reported its third-quarter results in May, featuring revenue up by 14 percent year over year and earnings per share up 7 percent. CEO Chuck Robbins said that in the third quarter, “we delivered record revenue and double-digit growth in both software and subscription revenue. As key technologies like cloud, AI (artificial intelligence) and security continue to scale, Cisco’s long-established leadership in networking and the breadth of our portfolio position us well for the future.”

Investors didn’t rush to grab more shares after that, though — because management also reported that total product orders were down 23 percent. That appears to be a precursor to sagging revenue, but there’s more to the decline. The improving global supply chain is a factor, with many customers waiting to receive previous orders before placing new ones, and economic uncertainty has other customers putting off orders.

Those should be short-term issues. Cisco’s order backlog is actually expected to be roughly double its normal size at the end of the fiscal year, so any economy-driven order declines won’t show up as revenue declines for a while. Cisco’s cancellation rates remain below historical levels, a sign that customers aren’t pulling back all that hard just yet.

While earnings could decline if customers hit the brakes harder, Cisco’s stock certainly doesn’t look expensive. Long-term investors able to stomach some volatility should take a closer look. (The Motley Fool owns shares of and has recommended Cisco Systems.)