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Cisco Systems Inc CSCO

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Morningstar’s Analysis

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Global Spending Weakness Hampers Cisco's Q4; Cost Extraction Plan Announced; Maintaining $48 FVE

Mark Cash Equity Analyst

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.

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Company Profile

Business Description

Cisco Systems, Inc. is the world's largest hardware and software supplier within the networking solutions sector. The infrastructure platforms group includes hardware and software products for switching, routing, data center, and wireless applications. Its applications portfolio contains collaboration, analytics, and Internet of Things products. The security segment contains Cisco's firewall and software-defined security products. Services are Cisco's technical support and advanced services offerings. The company’s wide array of hardware is complemented with solutions for software-defined networking, analytics, and intent-based networking. In collaboration with Cisco's initiative on growing software and services, its revenue model is focused on increasing subscriptions and recurring sales.

170 West Tasman Drive
San Jose, CA, 95134-1706
T +1 408 526-4000
Sector Technology
Industry Communication Equipment
Most Recent Earnings Jul 31, 2020
Fiscal Year End Jul 25, 2021
Stock Type High Yield
Employees 77,500