01—Abstract
Summary
Summary of the 10-Q filed November 19, 2024. Cited figures are marked; the original filing is the authoritative source.
Cisco Systems, Inc. reported a decrease in revenue for the first quarter of fiscal year 2025, with total revenue falling by 6% year-over-year to $13.84 billiona.
This decline was primarily driven by a 9%b decrease in product revenue, while services revenue saw a modest 6% increase. The company highlighted that excluding the impact of Splunk, total revenue would have decreased by 14%. Operating income saw a significant 45% drop, impacting diluted earnings per share, which decreased by 24%.
This performance was attributed to lower revenue, increased operating expenses including those from the Splunk acquisition, higher restructuring charges, and increased amortization of purchased intangible assets. Despite the revenue decline, Cisco is focusing on strategic investments in key growth areas like AI, security, collaboration, and observability, integrating AI across its product portfolio. The company reported robust free cash flow of $3.44 billionc and continued its capital return program through dividends and share repurchases.
Management indicated an improvement in product demand across most geographic segments, suggesting customers have largely completed installations from prior elevated shipment periods. Cisco remains committed to its long-term strategy of securely connecting everything to drive digital transformation for its customers.
02—Key points
Key Highlights
- Total revenue decreased by 6% to $13.84 billion compared to the prior year quarter.
- Product revenue declined by 9%, while Services revenue increased by 6%.
- Operating income decreased by 45% to $2.36 billion, and operating margin compressed from 29.2% to 17.0%.
- Diluted earnings per share decreased by 24% to $0.68.
- Significant increase in R&D, Sales & Marketing, and G&A expenses, largely due to the Splunk acquisition and restructuring charges.
- Free Cash Flow remained strong at $3.44 billion, supporting dividend payments and share repurchases.
- Company announced a restructuring plan impacting approximately 7% of its global workforce, with estimated pre-tax charges of up to $1 billion, incurring $665 million in Q1 FY25.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2025, Cisco Systems, Inc. kept $0.20.
- Revenue$13.84B100.0%
- Cost of revenue−$4.72B34.1%
- Gross profit$9.12B65.9%
- Operating costs−$6.76B48.9%
- Operating income$2.36B17.0%
- Interest, other & tax$353.0M2.6%
- Net income$2.71B19.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2025filed November 19, 2024Financial Statements
Q1 FY2025 against Q1 FY2024
| Line item | Q1 FY2025Q1 FY2024 | Change |
|---|---|---|
| Revenue | $13.84B$14.67B | −5.6% |
| Cost of Revenue | $4.72B$5.11B | −7.7% |
| Gross Profit | $9.12B$9.56B | −4.6% |
| R&D Expenses | $2.29B$1.91B | +19.5% |
| Operating Expenses | $6.76B$5.28B | +28.1% |
| Operating Income | $2.36B$4.28B | −44.9% |
| Net Income | $2.71B$3.64B | −25.5% |
| EPS (Basic) | $0.68$0.90 | −24.4% |
| EPS (Diluted) | $0.68$0.89 | −23.6% |
| Shares Outstanding (Basic) | 3.99B4.06B | −1.7% |
| Shares Outstanding (Diluted) | 4.01B4.09B | −1.8% |
05—Questions
Frequently Asked Questions
What was the primary driver for the year-over-year revenue decrease?
The primary driver for the year-over-year revenue decrease was a 9% decline in product revenue, largely due to lower demand in the Networking segment and normalized product shipments after an elevated period. Excluding the impact of the Splunk acquisition, the total revenue decrease would have been 14%.
How did the Splunk acquisition impact the financial results?
The acquisition of Splunk contributed significantly to revenue growth in the Security and Observability product categories, increasing total software revenue by 24% and total subscription revenue by 21%. However, it also led to incremental operating expenses, higher amortization of purchased intangible assets, and contributed to the increase in R&D, Sales and Marketing, and G&A expenses, impacting overall profitability.
What is the company's outlook on future demand and strategy?
Cisco's management noted an improvement in product demand across most geographic segments, indicating customers are normalizing after high shipment periods. The company plans to continue investing in key growth areas such as AI, security, collaboration, and observability, integrating AI across its product portfolio to drive digital transformation for its customers. Despite near-term revenue challenges, the focus remains on long-term profitable growth and innovation.
What is the significance of the restructuring plan announced?
Cisco announced a restructuring plan expected to impact approximately 7% of its global workforce, with estimated pre-tax charges of up to $1 billion. In the first quarter of fiscal 2025, the company incurred $665 million in charges related to this plan. The company expects to reinvest substantially all cost savings from this plan into key growth opportunities, indicating it is a strategic move to drive efficiencies and focus on future growth areas.
06—Continue