What led to Cisco Systems, Inc. (NASDAQ: CSCO) stock decline

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Cisco Systems, Inc. (NASDAQ: CSCO) stock lost over 5.5% on 13th Feb, 2020 (as of 9:33 am GMT-5; Source: Google finance) post the second quarter of FY 20, as the company has reported the net income of $2.9 billion compared to the expectations of $3.2 billion. The company continued to expect a pause in customer spending given the current macroeconomic environment. Cisco’s infrastructure unit, which includes its traditional business of supplying switches and routers, posted an 8% decline in revenue to $6.53 billion. The company has struggled as customers increasingly prefer using cloud-based services offered by companies such as Amazon.com Inc and Microsoft Corp instead of upgrading their networks and servers. CSCO has also reported revenue declines across all its geographies, including a 5% decline in Americas, its biggest market that accounts for about 58% of its revenue, EMEA was down 1%, and APJC was down 4%. Total emerging markets had fallen 7% with the BRICS plus Mexico down 20%. The sales in its application software unit declined 8% to $1.35 billion, while its fast-growing security business, that offers firewall protection and breach detection systems, grew 9% to $748 million. In the customer segments, public sector was flat while enterprise had fallen 7%. Commercial had declined 4% and service provider was down 11%. Remaining performance obligations or RPO at the end of Q2 were $24.9 billion, which is up 11%.

CSCO in the second quarter of FY 20 has reported the adjusted earnings per share of 68 cents, beating the analysts’ estimates for the adjusted earnings per share of 66 cents, based on analysts polled by FactSet. The company had reported 4 percent fall in the adjusted revenue to $12.01 billion in the second quarter of FY 20, beating the analysts’ estimates for revenue of $11.97 billion. The company delivered the non-GAAP operating margin rate of 33.7%, which is up 1.6 points

Additionally, Cisco has declared a quarterly dividend of 36 cents per common share, up 3% over the previous quarter. The company had returned $2.4 billion to shareholders during the quarter that was comprised of $0.9 billion of share repurchases and $1.5 billion for the quarterly dividend.

The company expects the third quarter revenue to decline in the range of 1.5% to 3.5% from a year ago ($13 billion), and earnings expected to be in the range of 62 cents to 67 cents per share (vs. 69 cents a year ago). Analysts polled by FactSet project third-quarter revenue to be of $12.6 billion and EPS to be of 71 cents per share in the current quarter.

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