Cisco rises as networking equipment demand rebound takes root – Networking

Cisco Systems shares rose about four percent before the bell after an upbeat fourth-quarter forecast signalled further stabilisation in networking equipment demand and benefits from its US$28 billion ($42 billion) deal for cyber security firm Splunk.

The world’s largest networking equipment maker had struggled with sluggish demand as customers adjusted piled up inventory from frenetic buying during the pandemic, as well as lingering supply-chain snags.

“After the past couple of quarters of meaningful inventory digestion headwinds, we viewed these order numbers as a positive,” Morgan Stanley analysts said in a note.

Cisco on Wednesday forecast fourth-quarter revenue between US$13.4 billion and US$13.6 billion, compared with analysts’ estimates of US$13.23 billion, according to LSEG data.

“We currently expect customers to complete the installation of the majority of their inventory by the end of our fiscal year in July,” said CEO Charles Robbins on a post-earnings call.

Product orders were flat in the third quarter, excluding the impact of the Splunk buyout, compared with a decline of 12 percent in the previous quarter.

Cisco was set to add almost US$8 billion to its market value on Thursday, if premarket gains held.

The company is expected to benefit from the billions of dollars US technology giants such as Microsoft and Meta Platforms are spending on data centres to support chatbots like ChatGPT, which need heavy computing power.

Cisco said this week that three of the top four cloud-computing companies were deploying its ethernet, as it reiterated a target of US$1 billion worth of AI product orders in fiscal 2025.

The company raised its 2024 revenue forecast to a range of US$53.6 billion to US$53.8 billion, from its previous expectations for a range of US$51.5 billion to US$52.5 billion.

Splunk boost

Cisco completed its acquisition of Splunk in March as part of its efforts to reduce dependence on its core networking business.

Including Splunk, revenue in Cisco’s security segment jumped 36 percent in the third quarter.

Total third-quarter gross margin was 65.1 percent, compared with 63.4 percent in the year-ago period.

Cisco had said that the acquisition will accelerate gross margin expansion in the first fiscal year after the deal’s close.