(Reuters) -Cisco Systems forecast fourth-quarter revenue above analysts’ low expectations on Wednesday as the network equipment maker benefits from a pick up in enterprise spending and easing supply chain constraints.
The company has been trying to reduce its reliance on its massive networking equipment business, which has suffered in recent years from supply chain issues and a post-pandemic slowdown in demand.
In recent quarters, Cisco has benefited from an increase in spending, with companies trying to boost their growing artificial intelligence and cloud computing needs.
“Customers are consuming the equipment shipped over the last few quarters in line with our expectations and we are seeing stabilization of demand as a result. The addition of Splunk to our product line will be a catalyst for further growth,” Cisco Chief Financial Officer Scott Herren said.
The company’s shares rose about 4.7% to $51.98 in extended trading on Wednesday. Ahead of the earnings report, Cisco’s shares had fallen about 2% year to date, far short of the S&P 500’s 11% gain over that time.
Cisco forecast fourth-quarter revenue between $13.4 billion and $13.6 billion, compared with analysts’ estimates of $13.23 billion, according to LSEG data.
For the third quarter, revenue fell 13% to $12.7 billion, but beat estimates of $12.53 billion. Splunk, which Cisco acquired to enhance its cybersecurity capabilities, contributed $413 million.
Cisco’s revenue has fallen for two straight quarters now, as it deals with an inventory backlog.
There is potential for aggressive pricing strategies to reduce inventory levels, which could put pressure on margins through the rest of the 2024, Joe Brunetto, analyst at Third Bridge, said.
On an adjusted basis, Cisco earned 88 cents per share, beating estimates of 82 cents.
(Reporting by Juby Babu in Mexico City; Editing by Shounak Dasgupta)
