Cisco (CSCO, Financial) reported its first quarter 2016 earnings on Nov. 12. The leading provider of communication equipment for the technology sector showed revenue of $12.7 billion and earnings per share of 59 cents for the quarter. Both revenue and EPS beat analysts’ average estimate for the quarter; however in earnings comments, the company reported a slowdown in the pace of orders for the second quarter.
Cisco is a worldwide leader in communication equipment and services with eight major business segments spanning the entire communication services spectrum. For the first quarter, the company reported total revenue growth of 4% from the comparable quarter with adjusted EPS growth of 9%. Data Center and Collaboration reported the strongest growth rates in the first quarter with Data Center up 24% and Collaboration up 17%.
In management’s first quarter comments, it revised down its outlook for the second quarter citing a slowed pace in orders overall from macroeconomic headwinds as a key factor in the near-term. For the second quarter it now expects comparable quarter revenue growth to be in the range of 0% to 2%, with adjusted EPS of 53 cents to 55 cents. This is down from previous market consensus of 5.1% for revenue growth and 56 cents for EPS.
Despite slowed order growth, Cisco continued to capitalize on market opportunities for expansion in the first quarter, while simultaneously achieving leading industry gross margin levels. In the first quarter, Cisco completed three acquisitions adding OpenDNS to Security and Pawaa and MaintenanceNet to its software Service offerings. In recent announcements the company also reported acquisition agreements with 1 Mainstream, Lancope Inc., Portcullis and ParStream. 1 Mainstream will be integrated within Cisco’s Service Provider Video business. Lancope and Portcullis will add to Cisco’s Security offerings. ParStream, with broad data analytics capabilities, will add to Cisco’s software revenue in Service.
Growing from both enhanced revenue generation and acquisition integrations, the firm still continues to maintain leading industry gross margins. For the first quarter, the non-GAAP gross margin was 63.2%. Gross margin remains competitive with its technology industry peers with Microsoft (MSFT, Financial) reporting a current total gross margin of 65% and Intel (INTC, Financial) reporting gross margin of 63%.
Overall, despite a slight slowdown in orders, Cisco reported strong results for the first quarter of 2016. The company’s brand reputation and market innovation continue to be leading factors driving total revenue growth for the firm. Meanwhile, its aggressive acquisition strategy also continues to help it capitalize on value expansion opportunities in key markets.
In discussions with CNBC following the firm’s earnings report, Chuck Robbins, Cisco’s CEO, provided more detail on the firm’s earnings results and growth strategies.
Disclosure: I do not hold any shares of any stocks mentioned in this article.
