Despite reading off positive results for the last three months, it seems investors are still worried about how much influence Cisco can have in the digital economy. But investment bank Jefferies think they are all wrong.
While Cisco reported positive results in the last 24 hours, $49.3 billion for the last twelve months (a 3% year-on-year increase), George Notter, MD of the Telecom & Networking Equipment group at Jefferies, notes there are still fears from investors that Cisco will not maintain the influence is swings around today as the world transitions to the digital economy. For Notter, the business is in a solid position and will only get stronger.
“Growing economies, data growth, and the general shift to a Big Data/Analytics-driven world are big (and accelerating) drivers for the company,” said Notter. “Further, investor perceptions about the company as a “melting ice cube” fighting against workload migration, market share pressures, etc. are wrong.”
The strength of the business here is the end-to-end network capabilities, which Notter notes will become increasingly strategic to Enterprise and Service Provider customers. Notter also points to improved product orders, growth for product deferred orders and enhanced backlog. Many of the indicators are heading in the right direction.
While there is of course work to do on the transformation project at Cisco, there is evidence it is working. The team has been seeking ways to boost the recurring revenues column on the spreadsheets, with the latest results demonstrated an increase to 32% of total revenues. Admittedly this is only up from 31%, but an increase none the less.
One area which Jefferies is not as confident is on the financials. Notter and his team believe revenues will be on the up over the next twelve months, hitting $51.1 billion for FY2019, though this estimate is about $600 million below the bottom end of Cisco’s own estimates. Although Jefferies are not as confident as the Cisco management team, at least they agree revenues will be heading in the right direction.