Security Products Shield Cisco From Weak Networking Market

A 17% gain in revenue from the security business helped offset weak demand for Cisco's network and routing systems in the third quarter.
Matthew HellerMay 19, 2016

Cisco Systems reported better-than-expected results for the third quarter as a 17% increase in revenue from its security products and services tempered the tepid demand for its main business of making network switches and routers.

The company on Wednesday said net profit fell to $2.35 billion, or 46 cents per share, from $2.44 billion, or 47 cents per share, a year earlier. Excluding items, the company earned 57 cents per share. Excluding items, Cisco earned 57 cents per share.

Analysts on an average had expected a profit of 55 cents per share and revenue of $11.97 billion, according to Thomson Reuters I/B/E/S. Revenue fell to $12 billion from $12.14 billion, above expectations of $11.97 billion.

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“We delivered a strong Q3, executing well despite the challenging environment,” Cisco CEO Chuck Robbins said in a news release. “I’m pleased with … the progress we’re making in transitioning our business to a more software and subscription focus, which we’ll continue to apply across our entire portfolio.”

In the latest quarter, Cisco’s switching revenue fell 3%, while revenue in the routing business fell 5%. But revenue in the security business, which offers firewall protection as well as intrusion detection and prevention systems, rose 17% due to strong sales of the company’s SourceFire products.

“Cisco has been beefing up its wireless security businesses to offset the impact of sluggish spending by telecom carriers on its main business of making network switches and routers,” Reuters said.

Dave Heger, an analyst at Edward Jones, said the decline in revenue from switching and routing was greater than expected and “a little bit concerning,” but Cisco’s overall results counteracted a recent sense of pessimism about the enterprise-technology sector, he told The Wall Street Journal.

For the fourth quarter, Cisco predicted adjusted per-share earnings of 59 cents to 61 cents and revenue in a range with a midpoint of $12.5 billion, exceeding analysts’ projections of 58 cents in profit on revenue of $12.42 billion.