Cisco’s Q1 Earnings Boosted By AI Demand

Cisco Systems exceeded Wall Street expectations in its first-quarter earnings report, driven by a growth in demand for its networking gear, particularly as companies ramp up investments in AI technologies. 

The California-based tech giant posted revenue of USD 13.84 billion for the quarter ending 26 October, a 6 per cent decline from the previous year but still surpassing analysts' estimates of USD 13.77 billion. The company’s adjusted profit per share of 91 cents also beat expectations, which had been set at 87 cents.

Despite the positive results, Cisco’s shares dropped 1.4 per cent in extended trading following the company’s forecast for the second quarter. Cisco expects revenue to be between USD 13.75 billion and USD 13.95 billion, slightly above analysts’ average estimate of USD 13.73 billion. It also projected adjusted earnings per share to fall within the range of 89 to 91 cents, compared to analysts’ expectations of 87 cents.

Cisco’s performance was fueled by a growing demand for data center products, such as ethernet switches and routers, which benefit from the AI boom. With businesses increasingly investing in AI technologies, the need for heavy computing power has spurred a demand for Cisco’s networking equipment. However, the company continues to face challenges within its traditional networking business, which has struggled with supply chain disruptions and a slowdown in demand after the pandemic.

In a bid to diversify its business, Cisco has made significant strategic moves, including its USD 28 billion acquisition of cybersecurity and software firm Splunk earlier this year. The acquisition aims to strengthen Cisco’s software and security capabilities, helping the company offset the slowdown in demand for its hardware products and capitalise on the growing AI and cybersecurity markets. As part of its cost-cutting efforts, Cisco also announced two rounds of layoffs in 2024, as it focuses more on AI-driven solutions and cloud systems.

Looking to the future, Cisco raised its annual revenue guidance to a range of USD 55.3 billion to USD 56.3 billion, slightly above its earlier forecast of USD 55.0 billion to USD 56.2 billion. Additionally, the company increased its adjusted earnings forecast to a range of USD 3.60 to USD 3.66 per share, up from the previous projection of USD 3.52 to USD 3.58.