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Cisco's shares drop as key product segment's sales decline in fiscal Q2

Cisco Systems Inc.'s shares were down more than 5% in after-market trading Feb. 9 after the company's fiscal second-quarter earnings beat estimates but sales in the key infrastructure segment declined year over year.

The technology company's revenue for the period ended Jan. 23 totaled $11.96 billion, down slightly from $12.0 billion a year ago. The S&P Capital IQ consensus estimate for the quarter was $11.90 billion.

Product revenue for the quarter was down 1% year over year to $8.57 billion, with revenue in Cisco's leading product segment, infrastructure platforms, down 3% year over year to $6.39 billion.

"As a reminder, this is the product area most impacted by the COVID environment," Cisco CFO Scott Herren said during the company's earnings conference call.

However, Cisco CEO Chuck Robbins said the company is continuing to see signs of gradual improvement, led by order growth in the commercial, public sector and service provider businesses.

"Looking ahead, we are cautiously optimistic as recent surveys of IT spending indicate year-over-year IT budget growth for calendar 2021," Robbins said. "And Cisco remains well positioned among CIO's top forward-looking spending priorities, including network infrastructure, cybersecurity software as well as cloud migration and cloud infrastructure."

Robbins also said the company already saw positive movement from industries that are not directly impacted by the pandemic, such as financial services, manufacturing and technical services, which offset those still in the middle of the pandemic and continue to struggle, including hospitality, retail and transport.

"I think from that perspective, it gives us confidence that as we come out of this thing that those industries that are being depressed by the pandemic will obviously look to the future and will recover as well," Robbins said.

Cisco's applications product segment revenue was flat overall at $1.35 billion, while security segment revenue was up 10% to $822 million. "Our cloud security portfolio performed well with strong double-digit growth and continued momentum of our Duo and Umbrella offerings," said CFO Herren.

Cisco's services revenue for the quarter was up 2% year over year to $3.39 billion, driven by growth in the company's maintenance business as well as solution support, Herren added.

The company's net income for the quarter was $2.55 billion, or 60 cents per share, down from $2.89 billion, or 68 cents per share, in the prior-year period. The consensus EPS estimate for the quarter was 58 cents on a GAAP basis and 75 cents on a normalized basis.

Looking ahead, the company expects fiscal third-quarter revenue growth of 3.5% to 5.5% year over year. GAAP EPS is expected to be 64 cents to 69 cents, while non-GAAP EPS is expected to be 80 cents to 82 cents.

Cisco also declared a quarterly dividend of 37 cents per common share, a 3% increase over the previous quarter's dividend, to be paid April 28 to all stockholders of record as of the close of business April 6.