Cisco erases losses despite Wall Street's worries over weak order book
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Cisco Systems (NASDAQ:CSCO) erased earlier losses and rose fractionally
on Thursday even as Wall Street analysts express concerned about the company's weak order book amid stronger-than-expected third quarter results.
KeyBanc Capital Markets analyst Thomas Blakey, who reiterated the firm's sector weight rating on Cisco (CSCO), said weaker enterprise orders are a concern, as they fell 22%.
Blakey was also concerned that the third-quarter results, which topped expectations, showed weakness in the product revenue segment, which accounts for 76% of revenues.
Competitors Juniper Networks (JNPR) and Arista Networks (ANET) fell in sympathy following Cisco's results.
During the third-quarter, the Chuck Robbins-led Cisco (CSCO) earned an adjusted $1 per share on $14.6B in revenue, including $11.09B from product revenue. Adjusted gross margins for the period came in at 65.2%.
A consensus of analysts expected Cisco (CSCO) to earn an adjusted 97 cents per share on $14.36B in revenue, up roughly 11.9% from the year-ago period.
The company ended the period with $32.1B in remaining performance obligations, slightly above the $31.95B analysts were expecting.
William Blair analyst Sebastien Naji said the company is seeing improvement in lead times, allowing it to ship more product and cut its backlog, but customers are waiting longer to put in orders, slowing momentum.
"Despite Cisco continuing to benefit from backlog drawdownsânormalization expected mid-fiscal 2024âwe remain concerned about the organic demand trends for the company," Naji, who rates Cisco (CSCO) shares market perform, wrote in an investor note. 
Naji added that even though Cisco (CSCO) could benefit from the tailwinds provided by generative artificial intelligence, including switching, routing, chips and optics, the company is losing share in areas such as networking, security and collaboration. 
J.P. Morgan analyst Samik Chatterjee said the order miss is a "bogey" for the company, at least over the next few quarters.
"While the order weakness does not come as a surprise following recent channel checks as well as read-through from other Networking Equipment companies, we do see moderating lead times as a part contributor to the sequential weakness in orders for all Networking Equipment companies, and expect Networking Equipment companies to get better credit for the opportunity to deliver growth again in the next fiscal year once customers return to placing orders for 2024 (e.g. normal purchasing trends)," Chatterjee wrote.
Following the quarterly results, Cisco (CSCO) raised its full-year earnings and sales forecast. It now expects to earn between $3.80 and $3.82 per share, up from a prior range of $3.73 to $3.78 per share.
Full-year revenue is expected to rise between 10% and 10.5% year-over-year, up from a prior range of 9% to 10.5%.
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