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Cisco Restructuring: Why Its Stock Was Flat Last Week

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Cisco Systems (CSCO) is coming up with a plan to reorganize some of its business segments, according to The Information. The networking and communications giant is strategically realigning to face stiff market competition in the cloud and networking spaces. Biz Journals reported that it would combine its enterprise networking and data center businesses into one segment.

Cisco will also expand the outreach of its cloud compute solutions by adding server products to its cloud framework. Cisco will rebrand its cloud solutions as its cloud strategy and compute unit. The newly formed unit will also oversee the sale of software-facilitating computing functions in its data centers. One of the reasons the company has included its server computing products under this head is to weather the competition from market peers Hewlett Packard Enterprise and Dell Technologies.

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Cisco’s leadership changes

Biz Journals quoted an email from David Goeckeler, general manager of Cisco’s networking and security business, about the restructuring. Scott Harrell will spearhead the company’s new enterprise networking and data center business. Harrell has been with Cisco since 2001 and was previously engaged in product management for Cisco’s security solutions.

Liz Centoni will lead the newly formed cloud strategy and compute unit. Centoni has been with Cisco for 19 years and was previously handling the company’s Internet-of-Things unit. Kip Compton, the senior vice president of the cloud platform business, will now manage the networking and security business.

Cisco’s death cross

Investopedia’s Richard Suttmeier reported an interesting observation about Cisco stock quotes. Currently, Cisco stock is facing a situation wherein its short-term moving average is lower than its long-term moving average—a phenomenon called the “death cross” that some technical analysts believe is a signal to reconsider holding a stock. On November 25, the stock’s 200-day moving average was $51.90, higher than its 50-day moving average of $47.33, according to Barchart.com.

The death cross is a turn of events whereby a company’s immediate outlook seems to drop below its long-term potential. It’s a technical indicator for when analysts turn “dovish” on a stock. Year-to-date, Cisco stock has risen around 6%.

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During the year, Cisco stock gained momentum in June and July. Between the end of July and the middle of August, the stock dropped around 18%, and on August 15, it fell about 8%. In August 2019, Cisco announced that it would downsize its operations in San Jose and Milpitas. At the time, it laid off up to 500 employees.

Upcoming events

In a press release on November 20, Cisco announced that it would participate in three upcoming events hosted by the banking and financial services community. These events could play a pivotal role in providing platforms where Cisco executives can interact with institutional investors.

The first event, the Credit Suisse 23rd Annual Technology Conference, is scheduled for December 3 in Scottsdale, Arizona. The second event is the Raymond James Technology Investors Conference in New York on December 9. The last event is the Barclays Global Technology, Media and Telecommunications Conference in San Francisco on December 12.

Earnings highlights

In the first quarter of fiscal 2020, which ended on October 26, 2019, Cisco beat analysts’ estimates. However, the stock still dipped 5%. Its revenue rose marginally year-over-year. The company’s cost of sales from its product segment was 8% lower than its expenses a year ago.

Somehow, Cisco couldn’t maintain its operating margins and net income margin. Its net income margin was 18% lower than in October 2018. Its non-GAAP (generally accepted accounting principles) diluted EPS were 12% higher than in the same period in 2018. However, its non-GAAP EPS of $0.84 were higher than its soft guidance of $0.80–$0.82.

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