Analyst Note| Mark Cash |
Narrow-moat Cisco Systems' 10% year-over-year revenue decline in the fourth quarter was slightly ahead of CapIQ consensus estimates, and the company performed well on the bottom line. However, management's guidance for the September quarter was weaker than we expected as Cisco does not currently see much spending improvement from a quarter ago. Although Cisco commented that its largest enterprise customers were a pocket of strength in the quarter, broad-based spending weakness by small to medium businesses impacted overall performance. Cisco is taking the demand lull as an opportunity to right size, with a plan to remove over $1 billion in costs, and realign development resources into higher growth strategic areas. While we expect demand weakness to continue impacting Cisco in the near term, the company's product portfolio strategy, solid operating profile, and balance sheet give us confidence in the longer term. We are maintaining our $48 fair value estimate and view shares as fairly valued.