Cisco Systems Inc. described the current economic conditions caused by the global pandemic as worse than the dot-com crash of 2000 and the Great Recession of 2008, but so far is it faring better than expected.
“Despite the challenging environment we are all operating in, we delivered a solid quarter and financial performance in the midst of the greatest financial crisis of our lifetime,” Cisco CSCO, -2.93% Chief Executive Chuck Robbins told analysts on the company’s fiscal third-quarter conference call.
The networking giant reported earnings and revenue better than Wall Street’s revised expectations for the quarter Wednesday. Cisco’s revenue of $12 billion was down 8% from the year-ago period, but slightly better than consensus estimates of $11.9 billion, and adjusted profits of 79 cents a share were even better than expectations of 71 cents a share.
And while most companies during this pandemic have pulled guidance or declined to give guidance for the rest of the year, Cisco also surprised investors by giving a forecast for the next quarter, saying that it expects revenue to decline between a range of 8.5% and 11.5% year-over-year, and adjusted earnings in a range of 72 to 74 cents a share. Its shares tacked on nearly 3% in after-hours trading.
“I still think there is a lot of volatility out there,” Chief Financial Officer Kelly Kramer told MarketWatch in a brief interview, when asked how the company was able to give guidance while others are deferring. “I think it’s a balanced guide.”
When asked if the fiscal fourth quarter could be the company’s bottom for the year, Kramer said it was too hard to call this the bottom because COVID-19 still lurks. “It depends on if there is a secondary outbreak, God only knows what happens. I think it’s way too early to call.”
As expected, the company has been seeing huge demand for its WebEx videoconferencing software, with so many people working from home — including Cisco, where 95% of its workforce are not going into the office. How many of the free trials will convert to subscriptions is a question, but Kramer said she has baked in potential additional subscribers and revenue from WebEx into Q4.
Robbins also said that Cisco has helped thousands of customers get hundreds of thousands of employees around the world up and running with virtual private network (VPN) connections. He also said that some CEOs are looking at their company’s IT infrastructure and trying to use this time to fix and modernize their infrastructure.
“This crisis has highlighted the importance of having highly resilient globally scalable infrastructure technologies to keep the world running and this is what we build,” he said. Later in the call he said some CEOs are saying: “‘I will never be this unprepared for something like this again,’ and if there’s a wave two coming in the fall, many of them may say we need to work on a lot of this right now. I don’t know that yet, but we think there could be.”
The company also said it was still early days for its $2.5 billion financing program to help customers to say how it will affect the next quarter. Kramer said since the program only just launched at the end of April, there would be a small impact on the fourth quarter, adding that the interest is coming from smaller commercial customers, health-care systems and a lot of small colleges.
Robbins told investors that he believes demand for Cisco’s products “will be strong when we emerge from this situation.” Investors, too, appear to be impressed by its current resiliency and appear to be hoping that this quarter is the bottom for COVID-19 as well as Cisco’s revenue declines.