Cisco's AI push in focus as shares fall on tepid networking gear demand (updated)

Juniper Networks

15/02/2024 14:39

(Updates prices in paragraphs 1 and 5)
    By Samrhitha A
       Feb 15 (Reuters) - Cisco Systems  CSCO.O  fell more than
3% on Thursday after the networking equipment maker reduced its
annual revenue forecast and rolled out job cuts as it battles
sluggish demand from telcos and cable service providers. 
    CEO Charles Robbins blamed weak macro environment and said
the company was "seeing a greater degree of caution and scrutiny
of deals".
    "Things have gone from bad to worse, with Cisco drastically
cutting FY24 expectations a 4th time as management overestimated
that demand would return in F2H24, when the reality is we are in
a networking downcycle ex-AI investments," said James Fish,
analyst at Piper Sandler.
    Cisco, which said it would cut more than 4,000 jobs, lowered
its annual revenue forecast to $51.5 billion to $52.5 billion
from its prior projection of $53.8 billion to $55 billion. 
    The company was on track to lose over $6 billion in market
value based on its share price of $48.75, if losses hold.
    Cisco has sought to counter the tepid demand for its
networking gear by shifting to AI and cybersecurity. On
Thursday, Robbins said AI chip leader Nvidia  NVDA.O  had agreed
to use Cisco's ethernet with its own technology that is widely
used in data centers and AI applications. 
    "(Cisco) pointed to nearly $3 billion in product 'pipeline'
associated with projects that incorporate AI, up versus $1
billion a quarter ago," Jefferies analyst George Notter said in
a note.
    "The traction is a positive for Cisco. Nonetheless, it's
still relatively small in the grand scheme of things for the
company."
    Meanwhile, Cisco said it expects its $28 billion acquisition
of cybersecurity firm Splunk to close in the first quarter or
early in the second quarter, compared to the previously
estimated third quarter.        
    Cisco trades at 13.10 times its 12-month forward earnings
estimates, versus rivals Juniper Networks'  JNPR.N  16.36 and
Arista Networks'  ANET.N  34.78. A lower PE multiple indicates a
more attractive investment opportunity.

    

 (Reporting by Samrhitha Arunasalam in Bengaluru; Editing by
Sriraj Kalluvila)
 ((Samrhitha.A@thomsonreuters.com))