Cisco Systems Inc. has set the stage for strong expectations as it navigates challenges marked by declining revenue but impressive earnings performance. The networking giant recently released its fiscal first-quarter results for 2025, showcasing earnings per share of 91 cents—surpassing analysts' estimates of 87 cents—and revenue of $13.84 billion, which, albeit down 6% from the previous year, exceeded the projected $13.77 billion.
Despite the upbeat earnings growth, Cisco's plummet of revenue has now persisted for four consecutive quarters, raising concerns among investors. During the latest quarter, the company's net income fell to $2.71 billion, down from $3.64 billion year-over-year, largely attributed to significant declines in its core networking business revenues, which dropped by 23% to just $6.75 billion.
While the overall picture appears worrisome, Cisco's diversification strategy has stabilized certain revenue streams. Notably, its security revenue surged by 50% to $2.02 billion, comfortably surpassing the analysts’ consensus of $1.93 billion. This reflects growing enterprise demands for cybersecurity solutions amid increasing digital threats. Similarly, services revenue climbed 6% to $3.72 billion, and revenues from observability—a smaller yet rapidly growing segment—grew by 36% to $258 million, illustrating areas of resilience within Cisco's offerings.
Chuck Robbins, Cisco's Chief Executive, emphasized during the earnings call the importance of artificial intelligence (AI) infrastructure, hinting at significant changes shaping the company’s future. He reported over $300 million generated from AI infrastructure orders made by significant clients, highlighting Cisco's commitment to entering the competitive AI market—a logical pivot considering the impressive growth projections for AI tools and services. “We have earned more design wins and remain confident we will exceed our target of $1 billion of AI orders this fiscal year from web-scale customers,” Robbins asserted during the call.
To meet this burgeoning demand, Cisco has rolled out new data center hardware powered by Nvidia Corp.'s graphics processing units, recognized as the industry standard for AI tasks. Robbins also mentioned plans to adapt to future market demands by incorporating various GPUs, including AMD's newly announced MI325X accelerator. The CEO optimistically stated, "I think 2025 is when we’ll start to see enterprises' real deployment of some of these technologies.”
Although the company reported strong demand forecasts, it is contending with government budget uncertainties. CFO Scott Herren noted delayed deals with U.S. agencies were due to significant fiscal adjustments after the recent Fiscal Responsibility Act, which has tightened budgets across the IT sector. Herren suggested, “It looks like the Republicans will carry both houses of Congress and the White House, and so I would expect to get a budget in place relatively soon,” implying optimism about possibly lifted constraints over government spending on tech needs.
Looking forward, Cisco is projecting earnings between 89 to 91 cents per share alongside revenue estimates between $13.75 billion and $13.95 billion for the next quarter. These targets are slightly above Wall Street predictions and represent the company's anticipation of gradual recovery after recent downturns. For the full fiscal year, Cisco has upgraded its guidance to annual earnings between $3.60 and $3.66 per share and revenue forecasts between $55.3 billion and $56.3 billion—indicating potential growth against the backdrop of prior forecasts.
After this report, analysts have reacted with renewed optimism, increasing price targets across the board. For example, Morgan Stanley raised its target from $58 to $62, indicating confidence amid the challenges Cisco faces. Despite these favorable adjustments, Cisco's stock has dipped slightly by just over 2% during after-hours trading, yet it remains up 17% throughout this year, showcasing the market's overall cautious optimism about future growth prospects.
Overall, Cisco's latest earnings results depict the company as balancing on the edge of transformation. Although current revenue declines cast shadows of uncertainty, the proactive approach toward enhancing AI infrastructure, alongside sector expansions, may pivot the company back to stable growth. With strategic acquisitions, product launches, and increasing focus on AI capabilities, we may be witnessing just the beginning of Cisco's new growth narrative as it reassesses its position within the competitive tech arena.
