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Cisco earnings breathe a sigh of relief, but demand debate continues

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Cisco Systems Inc.’s latest earnings were better than feared amid fears of potential macroeconomic pressures on spending.

Cisco CSCO,
+6.37%
Management dismissed post-report demand concerns, citing supply constraints as the main problem. Although component availability has improved in some respects, management expects supply challenges to impact its operating results for the remainder of the fledgling fiscal year.

Read more: Cisco Earnings and Earnings Forecast Allays Slowdown and Rising Stock Concerns

Analysts said that while Cisco’s revenue forecasts were better than expected, the company’s full-year earnings outlook did not perform as well.

The stock rose about 5% in pre-market trading on Thursday.

Some, including Jefferies analyst George Notter, were optimistic in the face of the latest results. Figured it looked fine in light of the house’s concerns. [year-over-year] product order growth,” he wrote.

Cisco’s product orders fell 6% year-over-year, but Notter said some investors may be “preparing for -20% or -25% product order growth.” increase.

He said Cisco’s results “seem to show that customers continued to aggressively place orders following Cisco’s bad news about China’s lockdown and component availability three months ago.” added.

Notter has a buy price for Cisco stock at $54.

Another bullish analyst, Raymond James’ Simon Leopold, also urged investors to look beyond the drop in product orders.

“Investors worry about order metrics, but we argue that due to supply chain constraints and changing time horizons, investors should focus on order level rather than order level. [year-over-year] growth,” he wrote. “Cisco’s indicators show demand remains healthy and its outlook faces constraints in its supply chain.”

He also wrote that Cisco “showed no signs of slowing demand.” Leopold has lowered his price target to $59 from his $63, but the stock’s valuation is outperforming.

Others weren’t happy to put their worries aside.

“While these results and outlook were positive, key metrics (ARR [annual recurring revenue]RPO [remaining performance obligations]product ARR and RPO) continue to slow down, but the total backlog is potentially decreasing [quarter over quarter]Piper Sandler analyst James Fish, who has a neutral rating and a $47 target price, wrote:

“Management expects the backlog to remain relatively maintained throughout FY23, but this is due to the fact that the peak cycle has been It is now lagging, suggesting risks to estimates for FY23-24.”

William Blair’s Jason Ader said that he and his team expect “an air pocket of demand (through deteriorating order growth) in the short to medium term, given the uncertain macro environment and the recent pull in demand from customers. We continue to worry about the emerging [value-added reseller] discussion)”.

Longer term, he added, his research suggests that “competitive headwinds for Cisco are increasing in key categories (networking, security, collaboration, etc.).”

He repeated his neutral rating in a note with the following title. But danger lurks beneath the surface. “

Rosenblatt Securities analyst Mike Genovese also had competitive concerns. “Despite strong industry conditions, we still believe Cisco is the loser in enterprise switching,” he wrote in a note to clients.

Genovese raised its share price target to $53 from $48, while maintaining a neutral rating on the stock.

Cisco’s stock fell 15% over the past 12 months until Wednesday’s close.
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We lost 4%.

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