Cisco guides towards flat sales in first quarter 2017, shares dip

Cisco Systems came out and beat analysts’ forecasts for its latest quarter even as it announced lay-offs as it looked to cloud software to cement its future and guided towards flat sales in the next quarter.

The networking giant reported earnings of $2.8bn for the fourth quarter of its 2016 fiscal year, which was equivalent to 56 cents a share on an adjusted basis, on the back of a 2% rise in revenues to hit $12.64bn.

Analysts had forecast quarterly EPS of 60 cents together with sales of $12.57bn.

Following several quarters of low growth on the networking side of the business, management decided to change tack and embrace cloud software, announcing 5,500 jobs were to go as a result, starting in the first quarter of fiscal 2017.

That was equivalent to 7% of its global headcount.

Indeed, the San Jose, California-based outfit told investors to expect roughly flat sales over the coming quarter, guiding towards revenue growth of between -1.0% to 1.0% and adjusted EPS in a range of between 58 to 60 cents.

However, quarterly product gross margins on a GAAP basis improved from 59.0% one year ago to 62.2%, with operating expenses lower by 4%.

Non-GAAP gross margins were expected to be in a range of between 63% to 64% over the next three-month period.

Analysts at JP Morgan bumped up their target price for the company's shares from $28.0 to $29.0.

"Our strong operational discipline has enabled us to drive growth and margin improvement as we continue to invest in key priority areas such as security, IoT, collaboration, next generation data-centre and cloud, while also delivering shareholder value," Cisco’s finance chief Kelly Kramer said in a statement.

“[…] We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth,” she added.

Full fiscal year 2016 revenues were up 3% to $48.7bn and EPS clocked in at $2.36.

Cash and cash equivalents at end of period stood at $65.8bn, up from $63.5bn in the previous quarter.

As of 15:12 BST stock in the company was slipping 1.17% to $30.72 giving the company a market capitalisation of $154.51bn.