Order Weakness Continues in Cisco's Q1
We are maintaining our fair value estimate and view shares as slightly undervalued.
Narrow-moat Cisco's (CSCO) 1% year-over-year sales growth (2% growth excluding divested SPVSS) was slightly better than Cap IQ consensus estimates. The transition to software, robust security growth, and application sales helped buoy weakness in routing products. Order weakness seen at the end of fiscal 2019 continued through the first fiscal quarter, and Cisco expects spending uncertainties to persist. Service provider business in emerging markets continues to be the most problematic area; additionally, Cisco saw weakness in its enterprise and commercial segments in the quarter. Although we expect Cisco to be affected by spending uncertainties in the near-term, we believe its strategic shift toward selling more software and services make the company a sustainable part of the networking and security aspects of hybrid-cloud environments. We are maintaining our fair value estimate of $48 per share. Shares dropped about 5% after Cisco reported, and we view shares as slightly undervalued.
Compared with the prior year, infrastructure platforms decreased by 1%, applications grew by 6%, security expanded by 22%, and services grew by 3%. In infrastructure platforms, switching saw growth in campus and data center markets, wireless strength was driven by the Meraki portfolio, and the data center segment growth was attributed to hyperconverged infrastructure. However, routing weakness in the service provider market pulled the infrastructure platform segment down. The strength seen in the security group was fueled by identity and access security, advanced threat protection, and web security. The applications business had broad-based strength, and AppDynamics experienced double-digit growth. Service sales growth was driven by software and solutions support. Software subscriptions were 71% of total software revenue, an increase of 12% compared with the prior year. Cisco is on track to meet its goal of having 50% of total sales from software and services by the end of fiscal 2020.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Mark Cash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.