Cisco's revenue fell 6% last quarter but still exceeded expectations. The revised full-year guidance is slightly lower, and after-hours trading rose nearly 5% before turning to a decline | Earnings report insights
Cisco's revenue for the first quarter of fiscal year 2025 decreased by 6% year-on-year, marking a decline for four consecutive quarters, yet still exceeding analyst expectations. Revenue from its largest business segment, networking, fell short of expectations with a 23% decline. Cisco slightly raised its full-year revenue guidance, but the midpoint of the range is below analyst expectations. Overall product orders for the quarter grew by 20%, and excluding the acquisition of Splunk completed in March, orders increased by 9%. The company reported $300 million in AI infrastructure orders from large customers for the quarter, with the CEO expressing confidence that full-year AI orders will exceed the target of $1 billion. The stock price turned negative in after-hours trading, dropping as much as 3%
Recent financial reports show that Cisco's quarterly revenue has been declining for a year. Driven by the surge in artificial intelligence (AI) technology applications, Cisco is more optimistic about reversing the revenue decline this fiscal year and has slightly raised its full-year guidance.
Nevertheless, the AI-driven demand outlook for IT infrastructure presented by Cisco has yet to impress investors, with some comments suggesting that Cisco's new annual guidance still appears conservative. Cisco's stock price rose and then fell after hours, not experiencing the same significant increase as after the last quarterly report.
On November 13, Eastern Time, after the U.S. stock market closed, Cisco announced its financial data for the first quarter of fiscal year 2025 (referred to as Q1), ending on October 26, 2024, and provided performance guidance for the second quarter of fiscal year 2025 (referred to as Q2) and the full fiscal year.
1) Key Financial Data
Revenue: Q1 operating revenue was $13.84 billion, a year-on-year decrease of about 6%, compared to analyst expectations of $13.77 billion, and a 10% year-on-year decline in the previous quarter.
EPS: Q1 non-GAAP adjusted earnings per share (EPS) was $0.91, a year-on-year decrease of 18%, compared to analyst expectations of $0.87, and a 24% year-on-year decline in the previous quarter.
2) Performance Guidance
Revenue: Fiscal year 2025 revenue is expected to be between $55.3 billion and $56.3 billion, up from the previous guidance of $55 billion to $56.2 billion, with analyst expectations at $55.9 billion. Q2 revenue is expected to be between $13.75 billion and $13.95 billion, with analyst expectations at $13.74 billion.
EPS: Fiscal year 2025 adjusted EPS is expected to be between $3.60 and $3.66, up from the previous guidance of $3.52 to $3.58, with Q2 adjusted EPS expected to be between $0.89 and $0.91.
After the earnings report was released, Cisco's stock price, which had risen 0.8%, initially increased and then fell after hours, having previously risen nearly 5% before giving back all gains and dropping by as much as 3%.
Q1 Revenue Declines for Four Consecutive Quarters but Exceeds Expectations; Network Business Revenue Falls Short of Expectations
The financial report shows that Cisco's Q1 revenue has declined year-on-year for the fourth consecutive quarter, but the decline of 6% is an improvement from the 10% drop in the previous quarter.
In its main business, Cisco's largest revenue source, the network business, saw revenue decrease by 23% to $6.75 billion, below analyst expectations of $6.8 billion, with the decline easing from 28% in the previous quarter. Security business revenue doubled year-on-year to $2.02 billion, exceeding analyst expectations of $1.93 billion, while collaboration business revenue fell 3% year-on-year to $1.09 billion, below analyst expectations of $1.04 billion.
Full-Year Revenue Guidance Range Slightly Raised; Median Below Analyst Expectations
Cisco has slightly raised its full-year revenue guidance, with the lower end of the range increased by over 0.5% and the upper end raised by nearly 0.2%. Based on the guidance range, Cisco expects fiscal year 2025 revenue to grow approximately 2.8% to 4.6% compared to fiscal year 2024's $53.8 billion, reversing the 6% revenue decline of fiscal year 2024 Comments suggest that Cisco is shifting its focus to cybersecurity, cloud systems, and AI-driven products, and the recent guidance upgrade reflects signs of improved demand.
However, even with the upgraded revenue guidance, the midpoint of the guidance range is still below analysts' expectations of $55.9 billion, indicating a conservative stance from Cisco.
First Quarter Order Growth Mainly Driven by Splunk's Large Customer AI Orders of $300 Million, Confident in Exceeding $1 Billion in AI Orders for the Year
Cisco stated that product orders accelerated in the first quarter, reflecting a normalization of demand. Product orders for the quarter increased by 20% year-over-year.
The order growth in the first quarter was primarily driven by Cisco's acquisition of cybersecurity and analytics company Splunk for $28 billion. Excluding the orders from Splunk, which was acquired in March this year, Cisco's product order year-over-year growth rate was only 9%.
Cisco CEO Chuck Robbins stated during the earnings call on Wednesday that AI infrastructure orders from large customers exceeded $300 million in the first quarter. Server manufacturers like Dell and Hewlett Packard Enterprise (HPE) are also focused on selling hardware that can help customers achieve generative AI.
Robbins expressed confidence that the company will exceed its AI order target for fiscal year 2025. He said:
"We have won more design orders and are confident that our AI orders from large-scale customers will exceed the $1 billion target this fiscal year."