VALUATION HIGHLIGHTS

1. Products constitute 72% of the Trefis price estimate for Cisco's stock.
2. Network Services constitute 28% of the Trefis price estimate for Cisco's stock.

WHAT HAS CHANGED?

1. Latest Earnings

The networking equipment provider posted revenue of $14 billion, up 9% year-over-year and above the analyst consensus. Cisco’s adjusted earnings rose to $3.8 billion, or 94 cents per share, from $3.5 billion, or 87 cents per share, a year earlier, also topping expectations. Cisco said the gains came as artificial intelligence infrastructure orders exceeded $350 million in the quarter, bringing its total to roughly $700 million for the first half of the fiscal year.

The company's board also approved a $15 billion increase to Cisco's stock repurchase program, and raised its quarterly dividend 3% to 41 cents per share.

Note:Cisco's FY'24 ended on July 27, 2024. Q2 FY'25 refers to the quarter that ended on January 25, 2024.

2. Outlook

Looking ahead, Cisco raised its full-year revenue forecast to between $56 billion and $56.5 billion from a prior estimate of $55.3 billion to $56.3 billion. It now anticipates adjusted earnings per share of $3.68 to $3.74, up from $3.60 to $3.66 previously.

3. Acqusiton of Splunk

In March 2024, Cisco closed a $28 billion all-cash deal to buy cyber security company Splunk, marking the networking major's largest acquisition yet. Splunk is a market leader in security information and event management. Cisco's core networking business has cooled in recent years, as information technology spending has shifted from traditional on-premises hardware and networking equipment to more cloud-based services such as Amazon's AWS. This has made the company focus increasingly on security, which is a natural extension of the networking business.

BUSINESS SUMMARY

Cisco designs and sells networking and communications technology and services. It creates networking equipment such as switches and routers used primarily by businesses and Internet service providers to route data such as emails, videos, files, and other digital communication. For example, an email that you send to a distant friend travels through various switches and routers made by companies like Cisco, Juniper, Huawei, and Alcatel-Lucent along the path to its destination.

SOURCES OF VALUE

Infrastructure Platforms

Over the past few years, Cisco has had a roughly 60% market share in the Switches market (although the figure has declined in recent years). Similarly, Cisco's share in the router market has also been comfortably over 50% in recent years. Cisco's share in the enterprise WLAN market is also around 50%. The company's dominance in these market spaces is expected to continue in the coming years, with competitors commanding a significantly lower share in these markets.

Network Services

In addition to networking hardware, Cisco provides maintenance and support services to its customers to help them fix problems that occur with networking equipment. Cisco's network service revenues and profits are dependent on the installed base of Cisco switch and router equipment.