Cisco’s Revenue, Profits Up In Q2, But Q3 Guidance Relatively Soft

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Cisco (NASDAQ:CSCO) announced its Q2 fiscal 2018 earnings on February 14, reporting a 3% increase in revenues to $11.9 billion. Revenues picked up after a sustained period of revenue declines in previous quarters. Cisco reported revenue growth across all major segments, which was complemented by an improvement in product gross margins. We have created an interactive analysis that summarizes Cisco’s Q2 FY’18 results and added Q3 FY’18 expectations for Cisco. You can change expected revenue, gross margin, operating margin and income margin figures for Cisco to gauge how it will impact expected EPS for current quarter.

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Cisco has reported little to no growth in core product revenues in recent years, driven by pricing pressure on hardware and a shift of consumer preferences from standalone hardware products. This trend was evident through the first three quarters of 2017, with low single digit revenue declines across most product streams. However, this trend reversed in the most recent quarter, with Infrastructure Platforms (comprising of routers, switches and wireless equipment) revenue increasing 2% y-o-y to under $6.7 billion for the quarter.

Similarly, applications (collaboration and unified communications) and network services revenues both increased 6% y-o-y to $1.2 billion and $558 million, respectively. These segments reported mid to high single digit revenue growth in recent quarters.

Guidance For Third Quarter

Cisco’s management gave modest guidance for the fiscal third quarter, with revenues expected to be flat on a year-over-year basis to around $11.9 billion. Cisco expects its non-GAAP gross margin to be 90 basis points lower at around 63.5% for the quarter. Similarly, operating profit margin could be around 2 percentage points lower at 30%.

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