May 13, 2020 / 8:17 PM / 19 days ago

Cisco's third quarter gets boost from demand for work-from-home apps

(Reuters) - Cisco Systems Inc (CSCO.O) beat quarterly revenue and profit estimates on Wednesday as COVID-19 lockdowns globally boosted demand for its remote-work tools and networking equipment, sending the Dow component’s shares up nearly 3% after the bell.

FILE PHOTO: A visitor uses a mobile phone in front of the Cisco booth at the Mobile World Congress in Barcelona, Spain, February 26, 2019. REUTERS/Rafael Marchante

The health crisis has forced many businesses to go completely online, increasing the use of video conferencing and virtual private network software, including Cisco’s Webex and AnyConnect.

Revenue for the unit offering Webex declined, but Cisco executives said that was because it also provides older software whose sales have declined as Webex grew strongly. Cisco does not break out sales for Webex, which competes with Microsoft Corp’s (MSFT.O) Teams software and Zoom Video Communications Inc (ZM.O).

“We are larger than Zoom, but they focus on the small and commercial and are trying to go into some enterprises. We have a strong footprint in the enterprise,” Chief Financial Officer Kelly Kramer said in an interview.

But Cisco executives gave a wider revenue forecast than usual and said that big one-time customer projects, like installing the latest generation of Wifi on corporate campuses, have in some cases been put on hold, especially in hard-hit industries such as retail.

“Some things are starting to open up. The question is how quickly they open up,” Kramer said. “Those verticals that are going to be challenged economically are going to be challenged no matter what kind of technology they are buying.”

Kramer also reiterated to Reuters that European 5G equipment makers Nokia (NOKIA.HE) and Ericsson (ERICb.ST) do not generate the kind of profits that Cisco looks for. U.S. officials earlier this year had suggested an American company buy one of the firms to create a stronger Western competitor to Huawei Technologies Ltd, but Cisco Chief Executive Chuck Robbins ruled that out in an interview with the Financial Times in February.

Kramer told Reuters on Wednesday that Cisco could profit from 5G networks by supplying data routing gear and software rather than cell-tower equipment.

“We’ve never been in that space. It’s not necessarily a profitable space,” Kramer said. “If we do any acquisitions in this space, you’ll see us do things along the lines that we have been doing in the software space.”

The network gear maker estimated fourth-quarter revenue dropping 8.5% to 11.5% from a year earlier to between $11.47 billion and $11.86 billion. Analysts had expected $11.82 billion, according to Refinitiv data.

Cisco’s third-quarter revenue fell 8% to $12 billion, narrowly beating analysts’ average estimate of $11.7 billion.

Excluding items, earnings of 79 cents per share topped expectations of 69 cents.

Reporting by Munsif Vengattil in Bengaluru and Stephen Nellis in San Francisco; Editing by Arun Koyyur and Richard Chang

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