Former CEO of Cisco Systems (CSCO), John Chambers, has made his exit on a high note … serving up one last earnings beat under his tutelage, and sending Cisco stock up more than 3% as a result.
Although Chambers didn’t always deliver the results CSCO shareholders hoped for, much like last quarter’s numbers, there’s no denying they were typically “pretty good” with the veteran at the helm. New CEO Chuck Robbins has some big shoes to fill.
Yet — and this is rarely easy to do in the shadow of a long-tenured veteran like John Chambers — Robbins already seems to have a vote of confidence among current owners of Cisco stock, leading Wednesday evenings conference call, and mapping the company’s next major initiatives.
The focal point going forward is not only not a surprising one, it’s the right one.
Cisco Earnings
In its fourth fiscal quarter, ending in late-July, Cisco Systems earned 59 cents per share on $12.84 billion worth of sales. Both topped analyst estimates. The pros were only calling for a top line of $12.66 billion and a bottom line profit of 56 cents per share of Cisco stock. Better still, the fourth quarter’s per-share earnings total outpaced the year-ago figure of 55 cents, while sales were up 3.8% compared to the year-ago revenue total of $12.36 billion.
The biggest pieces of the revenue pie were once again the switching and service segments, accounting for $3.72 billion and $2.93 billion worth of sales, respectively. Switching hardware sales were up 2%, with service revenue growing 4% on a year-over-year basis.
The shining star of the quarter, however, was it collaboration (WebEx, mostly) revenue growth — up 14% from the year-ago total, reaching $1.09 billion worth of sales. Data center revenue grew 14% as well, to $880 million.
The strong fourth quarter topped off a similarly strong year. For its fiscal 2015, the company posted a profit of $1.75 per share of CSCO on $49.16 billion in revenue, reversing a sales and earnings lull seen for the better part of last year.
More of the same growth is expected in the foreseeable future, too. Cisco said it expects to earn between 55 and 57 cents per share in the current quarter, with revenue rolling in somewhere between $12.5 billion and $12.7 billion. Those figures are largely in line with analysts’ projections, who are collectively calling for a profit of 56 cents per share of Cisco stock on sales of $12.55 billion.
Meet the New CSCO
As exciting as another progressive quarter is, the Cisco the market knows and loves now may not be quite the same Cisco we know and love a year from now.
In simplest terms, Cisco is in an acquisition mood, looking for opportunities outside of its traditional router and networking equipment business lines.
Case(s) in point: In June, the company announced its intent to spend $635 million to buy software company OpenDNS, and just a few days later it announced its intent to acquire software company MaintenanceNet for a cool $139 million. Last week, it added file-sharing platform Pawaa to its shopping list.
The trio of deals mark the fourth, fifth and sixth acquisitions Cisco has made this year alone.
All the deals are a broad response to the merging of two separate trends into one; Cisco is aiming to be in the right place at the right time, one way or another.
The first of those trends is the migration from hardware-based to software-based switches and routers. Generally referred to as software-defined networking, or SDN, this form of routing is generally cheaper and easier to repair or upgrade than a traditional “box” is. To date, Cisco has expressed little concern over the advent of SDN as a threat to its networking market share, but the fact that it has quietly invested in SDN startup Compass-EOS speaks volumes about what the networking giant may see looming on that front.
The other trend in the hopper is, of course, cybersecurity. Those are waters that John Chambers didn’t wade into any further than he had to in order to support Cisco’s hardware, but in the era of cloud computing, Chuck Robbins can’t shrug it off any longer.
And he’s not. He said quite plainly in a recent interview with Jim Cramer that cybersecurity deals are on the way. Some of the acquisitions already made, in fact, have cybersecurity elements to them, and though Chambers denied the company’s interest in acquiring cybersecurity firm FireEye (FEYE) when the idea was first brought up in May, it’s no longer Chambers’ decision.
Bottom Line for Cisco Stock
Cisco stock has never been especially sexy, even in its glory days of the late ’90s. That’s OK, though. It’s a perpetually reliable company. If nothing else, Chuck Robbins is inheriting a bulldozer pointed in the right direction, and even if he did nothing at all leadership-wise, he could at least coast for a few years.
The changes he’s making, however, suggest the company is positioning for more of the same slow-and-steady growth it has produced for the past couple of decades.
In other words, it’s still a solid buy you don’t have to constantly worry about, even if it’s unlikely to ever be a grand-slam hitter.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
