01—Abstract
Summary
Summary of the 10-Q filed February 20, 2024. Cited figures are marked; the original filing is the authoritative source.
Cisco Systems, Inc. reported its second-quarter fiscal year 2024 results, with total revenue decreasing by 6% year-over-year to $12.79 billiona.
This decline was primarily driven by a 9%b decrease in product revenue, while service revenue saw a modest 4% increase. The company cited customer spending scrutiny amid macroeconomic uncertainty and elevated product shipments from prior quarters as key factors impacting product demand, which is expected to continue through at least the end of fiscal 2024. Despite the revenue dip, Cisco demonstrated improved profitability with a 2.2 percentage point increase in total gross margin to 64.2%, largely due to productivity gains and a favorable product mix, partially offset by pricing erosion.
Diluted earnings per share decreased by 3% to $0.65c, reflecting the lower net income but aided by a reduced share count. The company continues to navigate a challenging environment while investing in innovation and its business model transition towards software subscriptions, which saw a 5% increase.
02—Key points
Key Highlights
- Total revenue declined 6% year-over-year to $12.79 billion, driven by a 9% drop in product revenue, while service revenue grew 4%.
- Gross margin improved significantly, up 2.2 percentage points to 64.2%, driven by productivity improvements and favorable product mix, partially offset by pricing erosion.
- Product demand is expected to remain impacted through at least the end of fiscal 2024 due to customer spending scrutiny and ongoing inventory normalization.
- Diluted EPS decreased 3% to $0.65, impacted by lower net income but cushioned by a reduced share count.
- Networking revenue saw a significant 12% decline, while Security, Collaboration, and Observability product categories showed modest growth.
- The company is progressing with its acquisition of Splunk, valued at approximately $28 billion, expected to close in early calendar year 2024.
- Cash provided by operating activities was $3.2 billion for the first six months of fiscal 2024, indicating continued operational cash generation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Cisco Systems, Inc. kept $0.21.
- Revenue$12.79B100.0%
- Cost of revenue−$4.57B35.8%
- Gross profit$8.22B64.2%
- Operating costs−$5.12B40.0%
- Operating income$3.10B24.2%
- Interest, other & tax−$462.0M3.6%
- Net income$2.63B20.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed February 20, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $12.79B$13.59B | −5.9% |
| Cost of Revenue | $4.57B$5.17B | −11.4% |
| Gross Profit | $8.22B$8.43B | −2.5% |
| R&D Expenses | $1.94B$1.85B | +4.7% |
| Operating Expenses | $5.12B$5.13B | −0.3% |
| Operating Income | $3.10B$3.29B | −6.0% |
| Interest Expense | $120.00M$107.00M | +12.1% |
| Net Income | $2.63B$2.77B | −5.0% |
| EPS (Basic) | $0.65$0.68 | −4.4% |
| EPS (Diluted) | $0.65$0.67 | −3.0% |
| Shares Outstanding (Basic) | 4.05B4.10B | −1.2% |
| Shares Outstanding (Diluted) | 4.07B4.12B | −1.0% |
05—Questions
Frequently Asked Questions
What is the outlook for product demand in the coming quarters?
Cisco expects the current impacts on product demand, driven by customer spending scrutiny and elevated product shipments from prior quarters, to continue through at least the end of fiscal 2024. The company is observing progress in customer inventory absorption but anticipates a full normalization period of another one to two quarters.
How did the different product categories perform?
The Networking category, Cisco's largest, experienced a 12% revenue decline year-over-year. In contrast, Security revenue grew 3%, Collaboration revenue grew 3%, and Observability revenue saw a strong 16% increase in the current quarter.
What is the status of the Splunk acquisition?
Cisco announced its intent to acquire Splunk for approximately $28 billion in cash. The transaction is anticipated to close in late calendar year 2023 or early calendar year 2024, subject to regulatory approvals and other customary closing conditions. The acquisition is planned to be financed through a combination of cash and debt.
How is Cisco returning capital to shareholders?
Cisco returned $2.8 billion to shareholders in the second quarter of fiscal 2024 through $1.6 billion in dividends and $1.2 billion in stock repurchases. The company targets returning at least 50% of its free cash flow annually to shareholders via dividends and share repurchases.
06—Continue