Cisco hits expectations once again, but disappoints on forecast

Cisco has released financials for the final three-month period of 2018, beating market expectations for the 21st consecutive quarter.

He might not be the most flamboyant of CEOs, but like Satya Nadella over at Microsoft, Chuck Robbins is letting the business do the talking. Since his appointment in 2015, the vendor has gone from strength-to-strength, with these results adding another feather to the cap.

Looking at the financials, total revenue for the three months reached $13.4 billion a 5% year-on-year increase, while net income was down 42% to $2.2 billion. Although the latter figure might shock some, CFO Kelly Kramer has suggested this is only a blip on the radar, with the hole attributable to US Treasury Regulations issued during the quarter relating to the Tax Cuts and Jobs Act.

In terms of the numbers across the year, total revenues stood at $51.7 billion, up 7%, while net income was $13.8 billion, an increase of 9% compared to the previous year.

However, it is not all glimmering news.

“Let me reiterate our guidance for the first quarter of fiscal ’20,” Kramer said during the earnings call. “We expect revenue growth in the range of 0% to 2% year over year.”

Considering the ambitious plans set-forward by the business over the last few years, this would not seem to be the most generous of forecasts. The dampened forecast might well disappoint a few investors. What is worth noting, it that despite having strong and stable foundations, Cisco is not immune to global trends.

Looking at the telco customers, Asia is demonstrating weakening demand for Cisco. The China telco business is weakening, while demand in India has dropped off as aggressive network roll-outs in 2018 are not being replicated today.

In terms of working with enterprise customers, the team had two major software deals in 2018 which are “tough to compare against”, according to Robbins, while the Chinese and UK markets are demonstrating weakened positions thanks to events which are outside of the control of the team. No prizes for guessing what those events might be.

What is worth noting is that while it is easy to point the finger of blame towards China in the current political climate, take    this explanation from Robbins and Kramer with a pinch of salt. Cisco’s revenues in China might have declined by 25% this year, though the market only accounts for less than 3% of total revenues.

Cisco is no different from any other vendor in the telco space right now. It might be performing healthily, though it is reliant on telcos getting their act together and pushing network investments forward. The 5G bonanza to boost profitability in the telco ecosystem is yet to appear, though there are hints it might be just around the corner (as always…).

“I would say don’t anticipate that being a huge profit driver off of the 5G transition that’s going to come when they build more robust broader 5G infrastructure where they’ll deliver enterprise services and that’s going to come after they do the consumer side,” Robbins said.

“So, it’s a bit unclear when that will take place. I’d say we’re not modelling and don’t anticipate any significant improvement in this business in the very near term.”

This is where the 5G hype can be slightly misleading. There are of course telcos who are surging ahead, but these are only a fraction of the networks around the world. It is promising, but the market leaders or fast followers are not going to flood vendors bank accounts with profits.

There are numerous markets who are still in the testing phases of 5G, with the telcos aiming to figure out the commercial business model to make the vast investments in future-proofed markets work. When we start getting to the steep rises of the bell curve, this is where the profits will start rolling in.

That seems to be the message from the Cisco management team today; we’re in a healthy position, but don’t expect this quarter to blow anyone’s mind away. The 5G euphoria is on the horizon, but investors will have to wait just a little bit longer.

Jio surges forward with subs and profits

Reliance Jio has unveiled its latest quarterly figures and, surprise surprise, subs are once again on the up as well as profits.

Monthly ARPU might have be on the decline, down to $1.77, a trend which is not showing signs of slowing, but scale seems to be the answer for Jio. The firm now has a subscriber base of 331 million, adding 24.5 million over the last three months and 116 million during the last year.

“Growth in Jio mobility services has continued to surpass all expectations,” said Mukesh Ambani, MD of Reliance Industries, Jio’s parent company.

“In less than two years of commercial operations, Jio network carried almost 11 Exabytes of data traffic during the recently concluded fiscal quarter. Jio management is focused on giving unmatched digital experience at most affordable price to every citizen of the country, and accordingly expanding the network capacity and coverage to keep pace with demand.”

The progress which has been made by the firm over the course of the last two years is remarkable and perhaps demonstrates how under-developed the Indian market actually was. Although India has been seen as a growth economy, part of the now old-fashioned BRICs group, it wasn’t until Jio shook up the market the digital revolution took hold.

Average consumption of data is now up to 11.4 GB a month, with Jio suggesting customers used 10 exabytes over its network during the quarter. The Indian consumer certainly has an appetite for data and they don’t seem to be satisfied whatsoever.

Looking at the financials, these are also very promising. Early criticism of Jio was that it was negatively impacting competition in the market as there was little profit being made by the firm. This is generally seen as a negative, as running loss leaders to kill off competition very rarely works for the greater good in the long-term, though the numbers speak for themselves.

Quarterly revenues increased 44% year-on-year, while the firm collected profits of $119 million, a 45% year-on-year boost. These numbers are attractive for the moment, but profitability currently looks to be reliant on scale and subscriber growth. Sooner or later, this growth will slow, and the team will have to look at the worrying rate at which ARPU is declining.

Period Q1 2019 Q3 2018 Q1 2018
ARPU (Indian Rupee) 122 130 154

Microsoft profits soar on back of cloud

Microsoft has unveiled it earnings for the quarter ending June 30 and it has certainly given investors something to smile about.

Revenues for the fourth quarter stood at $33.7 billion, a year-on-year increase of 12%, while net income increased by 49% at $13.2 billion. For the full year, revenues totalled $125.8 billion while net income was $39.2 billion, a 137% increase on the previous year. Investors certainly seemed happy with the results, with Microsoft’s share price increasing 3.4% in pre-market trading.

“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said CEO Satya Nadella.

“Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”

With Nadella at the helm and cloud computing driving momentum, Microsoft has reaffirmed itself as the most valuable company on the planet, with market capitalisation now standing at $1.05 trillion.

Although the cloud business segment will steal the headlines, the More Personal Computing unit, the legacy shunned child of the Microsoft family, drove year-on-year growth of 4% for the final three months of the year.

Looking at the growth segments of the business, Productivity and Business Processes, featured the LinkedIn and Office products, bolstered revenues by $11 billion, a 14% year-on-year increase. The Intelligent Cloud unit brought grew 19% accounting for $11.4 billion.

There might have been some mixed headlines across the last couple of days, Teams overtaking slack was balanced by the Office 365 ban in schools in Germany, but Nadella and his cronies will certainly be sleeping comfortably.