(Bloomberg) — Cisco Systems Inc. gained about 5% in extended trading after giving a solid sales and profit forecast for the current quarter, indicating that customers are beginning to invest in their computer networks again.
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Sales will be $13.4 billion to $13.6 billion in the fiscal fourth quarter, which ends in July, the company said in a statement Wednesday. That compares with an average analyst estimate of $13.5 billion. Excluding certain items, profit will be 84 cents to 86 cents a share, versus a prediction of 84 cents.
The outlook sent the shares as high as $54.11, before paring some of the gains. They had earlier closed at $49.67, down 1.7% for the year.
Chief Executive Officer Chuck Robbins is continuing his push to remake Cisco as a provider of networking services and software — a strategy that included the $28 billion acquisition of Splunk Inc. The shift still hasn’t fully insulated the company from fluctuations in hardware purchases by corporate and telecommunications company customers.
Cisco reported a 4% gain last quarter in orders — an indicator of future sales — when including Splunk. They were flat otherwise, but analysts had been fearing a decline. Orders had dropped 12% in the previous period.
For all of fiscal 2024, revenue will be $53.6 billion to $53.8 billion, compared with an average estimate of $53.6 billion. Sales will grow by a percentage in the low- to mid-single digits in fiscal 2025, Cisco said.
“Customers are consuming the equipment shipped over the last few quarters in line with our expectations,” Chief Financial Officer Scott Herren said in the statement. “We are seeing stabilization of demand as a result.”
On a conference call with analysts, Robbins said that customers will finish working through their backlog by July.
Cisco’s adjusted gross margin — the percentage of sales remaining after deducting the cost of production — is expected to be 66.5% to 67.5% this quarter.
In Cisco’s fiscal third quarter, which ended April 27, revenue contracted 13% to $12.7 billion. Profit was 88 cents a share, minus some items. Analysts had estimated revenue of $12.66 billion and earnings of 82 cents a share.
Cisco pointed to progress improving its relationships with large data-center operators. These so-called hyperscalers — companies such as Microsoft Corp. and Alphabet Inc.’s Google — pioneered the use of in-house networking equipment, which cut Cisco out of some cloud-computing spending.
But now Cisco is benefiting from their spending on AI infrastructure. The company has a “line of sight” to $1 billion in orders from hyperscalers and others investing in AI, according to Cisco’s Herren.
Cisco closed its acquisition of data-crunching software maker Splunk during the quarter. That addition added $413 million of revenue.
The Splunk takeover is adding to Cisco’s deferred revenue pile, helping it shift from a reliance on one-time purchases to long-term contracts for software and services. The company now has recurring revenue that accounts for more than half of total sales and remaining performance obligations of almost $39 billion, according to Herren.
Splunk CEO Gary Steele will become a Cisco president focused on its “go to market” strategy. Meanwhile, Jeff Sharritts, the company’s chief customer and partner officer, will depart in mid-July.
“Steele is well known for his operational excellence, and in this new role, he will work closely with Robbins to set and execute against Cisco’s strategic plans and goals,” the San Jose, California-based company said.
(Updates with comments from CFO in 11th and 12th paragraphs.)
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