Cisco Systems (CSCO, Financial) released earnings results for its third quarter of fiscal 2021 on May 19 after the market closed. Earnings and revenue beat estimates thanks to strong security and services revenue.
The company's shares were down 6.2% in after-hours trading to $49.21 apiece on Wednesday following the earnings announcement.
Overview of the quarter
The U.S. multinational technology conglomerate posted adjusted earnings per share of 83 cents, up from 79 cents reported the year before. Wall Street had predicted EPS of 82 cents.
Revenue of $12.8 billion grew 7% on a year-over-year basis and beat analyst expectations of $12.56 billion.
CEO and Chairman Chuck Robbins said:
"Cisco had a great quarter with strong demand across the business. We are confident in our strategy and our ability to lead the next phase of the recovery as our customers accelerate their adoption of hybrid work, digital transformation, cloud, and continued strong uptake of our subscription-based offerings."
Segment results
Infrastructure Platforms, which consists of core networking offerings such as switching, NGN routing, wireless and data centre, generated revenue of $6.83 billion in the third quarter. This was a growth of 6% over the past year. Analysts projected revenue of $6.77 billion for the segment.
The application segment, which consists of inter alia (the WebEx video calling service), recorded revenue of $1.43 billion, which surged 5% year over year. The growth was attributable to robust use of Webex video conferencing as well as business efficiency efforts amid the pandemic. Analysts had predicted revenue of $1.44 billion.
Security revenue of $876 million was up 13% in the reported quarter. This was due to strong demand for identity and access management and unified threat management solutions. Services revenue improved 8% year-over-year to $3.66 billion.
Revenue tumbled 34% to $6 million for other products, which include service provider video, cloud and system management and emerging technology.
Partnerships and acquisitions
Cisco and Microsoft's (MSFT, Financial) Azure virtual van integration with Office 365, together with strong collaboration with Amazon (AMZN, Financial) web services, has helped Cisco in providing secured end-to-end connectivity and improved application performance. In addition, the company has also partnered with Alphabet's (GOOG, Financial) (GOOGL, Financial) Google Cloud. These partnerships are expected to help sell more SD-Wan solutions, given that the customers are moving more applications to the cloud.
Last year in April, the company announced its intension of expanding its Industrial Internet of Things (IoT) portfolio by acquiring Fluidmesh Network, which is a global leader in wireless systems for security, industrial and business-critical operations. In July, the company completed the acquisition. The acquisition has helped Cisco cater to the budding demand for IoT-based solutions in the market.
During the second quarter of fiscal 2021, the company had agreed to buy Acacia communication (ACIA, Financial), which develops, markets and sells high-speed coherent optical interconnect products, in a cash deal ($115 per share) worth roughly $4.5 billion. The previously agreed price was $2.6 billion. Cisco said it had received a go-ahead from all necessary regulatory authorities and the transaction was closed in the third quarter. Similarly, Cisco has acquired IMImobile PLC, a cloud communications software provider based in the United Kingdom, during the quarter.
Outlook
Cisco has provided guidance for the fiscal fourth quarter. The company projects adjusted EPS to fall within the range of 81 cents to 83 cents. Revenue is expected to grow in the 6% to 8% range.
Disclosure: I do not hold any positions in the stocks mentioned.
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