Cisco Systems Inc. recently released a revised forecast for its next two quarters and full year, which has led to some disappointment. However, it is important to note that this is specific to the company and should not be seen as indicative of the overall tech sector's performance.
In its fiscal first-quarter earnings report, Cisco announced a reduction of $3.2 billion in its full-year revenue projection. This adjustment is primarily due to customer deployment issues. The new forecast sets the revenue range for fiscal 2024 at $53.8 billion to $55.0 billion, down from the previous estimate of $57.0 billion to $58.2 billion.
Following this news, Cisco's shares experienced an 11% decline in after-hours trading on Wednesday.
During a conference call with analysts, Cisco's Chief Executive Chuck Robbins openly addressed the situation, taking responsibility for the outlook. He stated that it would have been simpler to blame macroeconomic factors, but he opted for transparency instead. Robbins explained that the revenue drop is mainly attributed to customer consumption patterns, specifically the prolonged time between equipment deployment and connection to the cloud.
Additionally, Robbins highlighted a surge in implementation services requested by customers. This suggests that they require more assistance with product installation. Despite these challenges, Cisco is still observing longer sales cycles.
Overall, it is crucial for investors to understand that Cisco's revised forecast should not overshadow the recent rebound of the tech sector. This company-specific issue does not reflect the overall industry's performance and potential.
Cisco's Revenue and Collaboration with Nvidia in the AI Space
Robbins, the CEO of Cisco, has revealed that the company has strong revenue potential of around $1 billion for fiscal 2025 in the field of artificial intelligence. This revenue is linked to their involvement in a comprehensive ethernet-network buildout beneath powerful GPUs used for machine learning and AI training.
Cisco has been actively working with Nvidia in this endeavor, collaborating on integrated solutions. Jensen Huang, the CEO of Nvidia, along with several other executives, recently met with Cisco to further strengthen their partnership.
While Nvidia specializes in graphics processing chips for high-performance computing using the InfiniBand networking architecture, Cisco firmly believes in the potential of ethernet for AI applications.
Robbins emphasized the significant developments taking place in the AI domain. However, there are concerns about the ease of deploying Cisco's products. Investors are questioning whether additional assistance is needed, and if this could impact future revenue. On the other hand, some customers may be overwhelmed by the task of building AI data centers and neglecting other aspects of their business.
Cisco has always been considered a key indicator of enterprise spending trends. Currently, it highlights how companies might prioritize AI deployment at the expense of other areas. However, this should not dampen the enthusiasm for tech stocks, at least for now.
