Cisco Systems, Inc. (NASDAQ:CSCO) delivered GAAP earnings of $2.3 billion, 47 cents per share, on revenue of $11.6 billion. The revenue number was $200 million lower than last year.
On a non-GAAP basis, however, the numbers were considered quite good. Adjusted income came in at 57 cents per share, and revenues beat estimates by $50 million.
Despite the weakness on the top line the stock was rewarded, rising almost 1% in after-hours trading after advancing 1.6% during the Feb 15 trading day. It is expected to open Feb. 16 at about $33 per share.
The reason is that the company announced it is raising its dividend to 29 cents per share from 26, and continuing to buy back shares so it can stay under 5.1 million shares outstanding, even while granting stock and stop options as part of its compensation.
The Cloud Challenge
Reporters were not amused on the company’s conference call, asking tough question about data center revenues, the company’s turn to computer security, and its relationships with top customers.
Management said one of those top customers, unnamed, had a tough year while the other nine grew at double-digit rates, which is why overall revenues fell.
Over the course of the past decade Cisco has increasingly emphasized relations with its biggest customers, becoming the primary supplier of gear to the world’s largest telephone companies. But those companies are losing in the cloud to vendors like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN), which prefer to build their own hardware from parts, rather than buying high-end gear from outside vendors.
Cisco is now seeking to transition toward software, adding talent in analytics, machine learning, and artificial intelligence, said CEO Chuck Robbins. “We’re trying to take out the cost of running this infrastructure,” he said, calling the software move “broad-based.”
Cisco said 31% of revenue is now subscription-based, rather than product revenue. It’s a tough turn for any hardware company to make. “We are trying to make that shift,” said CFO Kelly Kramer, noting the Cisco One security offering. “Six quarters ago, our recurring revenue was 26% of the total,” added Robbins. “In the last two quarters that change has accelerated. We are finding ways to move that forward.”
Cisco plans to add new subscription services in analytics and automation over the next year. The hope is the software will be compelling enough to win business among companies that have stopped buying its hardware.