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Weak Guidance and Poor Services Revenue Growth Pulled Cisco Down

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Cisco Systems beat earnings and revenue estimates, but guidance was weak

Cisco Systems (CSCO) reported its fiscal third-quarter[1. fiscal third quarter ended April 28] numbers on May 16. While the company beat earnings and revenue estimates, tepid guidance led its stock to fall 4.3% in after-hours trading on Wednesday.

Cisco Systems’ fiscal third-quarter revenues grew 4.4% year-over-year to ~$12.5 billion, beating Wall Street estimates of ~$12.4 billion. It posted a profit of ~$2.7 billion, growing 6.7% from the fiscal third quarter of 2017. On an adjusted basis, the company posted earnings of $0.66 per share, narrowly beating analysts’ expectations of $0.65 per share.

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Cisco Systems hopes that its newer businesses will drive growth

Since Chuck Robbins took over as CEO in 2015, the hardware giant has been shifting its focus away from its core businesses of switches and routers and into areas like cloud, cybersecurity, and IoT (Internet-of-Things). The company’s security business, which includes firewall protection and breach detection systems, saw its revenues rise 11.0% to $583.0 million in the fiscal third quarter.

However, investors were disappointed in the revenues from its Services segment, which provides technical and network support. These revenues increased only 3.0%, reaching $3.16 billion and missing the Wall Street estimate of $3.24 billion.

Cisco Systems (CSCO) stock has risen 17.9% year-to-date, as investors are betting on the company making a smooth transition into the faster-growing areas of expertise. CSCO stock fell in after-hours trading, as these numbers suggest that the transition is still a work in progress.

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