The Bad News Continues For Cisco

Cisco made headlines three months ago when they announced they were laying off close to 500 employees at their San Jose and Milpitas offices and issued guidance that was below Wall Street expectations. Cisco disclosed that the layoffs included analysts, business operations managers, designers, engineers, product managers and technical leaders. Needless to say the stock price fell as much as 8% in its biggest one-day percentage loss since May 2017.

But the bleeding is just beginning, Yesterday, Cisco reported their first quarter earnings. The company reported first-quarter net income of $2.93 billion, or 68 cents a share, compared with $3.55 billion, or 77 cents a share, in the year-ago period, but it was what they said about the second quarter that spooked investor. Cisco said that revenue would fall 3% to 5% year-over-year in the second quarter. This marked the second consecutive quarter of declining forecast.

“Just go around the world and you see what’s happening in Hong Kong, you look at China, what’s happening in D.C., you’ve got Brexit, uncertainty in Latin America,” Robbins said during a conference call with analysts. “Business confidence suffers when there’s lack of clarity and there’s been a lack of clarity for so long that it’s finally come into play.”

Cisco has said that the biggest drag on its earnings are cable companies that are trying to extend the life of their existing gear rather than buying new equipment. Adding to that slowdown, a big chunk of spending by phone-service providers is on the early deployment of 5G, or fifth generation, cellular networks. That’s mainly for the base station radio towers that Cisco doesn’t sell. Its gear will be needed later when traffic picks up in data centers.

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Once 5G is ubiquitous, we will see transfer speeds to be five to 10 times faster than 4G LTE. The increased speeds will improve video streaming, and allow for more augmented and virtual reality applications. Cisco, through its Cloud-to-Client approach, plans to offer more flexible software-based alternatives to traditional networking hardware that allows telecommunication companies to provide 5G service on their existing network without the need for significant infrastructure upgrades, but as they noted in the conference call that’s not needed now.

So where is price headed next?

Shares fall 18% from the peak in July, when price hit the monthly supply zone at $56.

The fact that price couldn’t even each the daily supply at $52.50 suggests there is massive weakness and just increased the probability of price declining to the major support line at $40.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.