Cisco beats as network gear demand rises, new bets pay off

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(Reuters) – Cisco Systems Inc beat analysts’ estimates for quarterly revenue and profit on Wednesday, as the network gear maker benefited from demand for its routers and switches and growth in its newer focus areas such as software.

Cisco beats as network gear demand rises, new bets pay off

FILE PHOTO: A logo of Cisco is seen during the Mobile World Congress in Barcelona, Spain February 27, 2018. REUTERS/Yves Herman/File Photo

Shares of the company, which also forecast second-quarter revenue largely above expectations, rose 4 percent in extended trading, putting them on track to add to the nearly 16 percent gain for the year.

Cisco pivoted to software and cyber security to cushion the impact from slowing demand for its routers and switches from companies increasingly shifting to cloud services offered by Amazon.com Inc, Microsoft Corp and Alphabet Inc instead of building their own networks.

Revenue in its application software businesses rose 18 percent to $1.42 billion, beating analysts’ average estimate of $1.37 billion, according to IBES data from Refinitiv.

Sales in its security business, which offers firewall protection and breach detection systems, rose 11 percent to $651 million. That fell short of IBES estimate of $656.4 million, but beat research firm FactSet’s estimate of $648.1 million.

Deals such as the $2.35 billion purchase of cyber security provider Duo Security in August have played an important part in driving growth in Cisco’s newer business.

Acquisitions provided an 80 basis point boost to the company’s first-quarter results year-over-year, Chief Financial Officer Kelly Kramer said on a post-earnings call with analysts.

Revenue in its infrastructure platform unit, which houses the switches and routers business, rose about 9 percent to $7.64 billion, topping expectation of $7.39 billion.

Subscriptions, which provide a more steady revenue flow, accounted for 57 percent of total software revenue in the first quarter, the company said. The share was 56 percent in the preceding quarter.

“Cisco is executing on its plan to move its business model to software and subscriptions while benefiting from a strong IT spending environment,” said Mark Cash, an analyst with Morningstar.

Cisco said tariffs were immaterial for the reported quarter, but added that the impending 25 percent duties could weigh on third-quarter results.

The company said it expects second-quarter revenue growth of between 5 percent and 7 percent from a year earlier. This implies a range of between $12.48 billion and $12.72 billion, while analysts were expecting $12.53 billion.

For its first quarter ended Oct. 27, the company reported an adjusted profit of 75 cents per share, above the average estimate of 72 cents.

Total revenue rose 7.7 percent to $13.07 billion, topping estimate of $12.87 billion. However, the company said deferred revenue fell 9.4 percent to $16.81 billion.

Reporting by Akanksha Rana in Bengaluru; Editing by Sriraj Kalluvila