Networking hardware provider Cisco Systems is facing a pause in some of its orders as well as a fall in revenue. The economic fallout as a result of the pandemic has cast a doubt on prospects of Cisco’s customers who have, perhaps, never faced this sort of situation. Cisco’s recent 3Q2020 earnings reported a revenue fall of 8%. However, earnings per share grew 1% Y-o-Y.
Cisco products span the hardware as well as the software segments. One of the big reasons for a rise in earnings per share despite falling revenues is the fact that Cisco has been shifting its focus from hardware to software. Hardware, and memory chips, in particular, is a commoditized market with low margins. However, software is a higher margin business where the value-add element is greater. Cisco has been bundling its software in its network products as well.
The pandemic has also boosted the concept of remote working. Videoconferencing has gained new importance among working professionals. This rising trend has benefited Cisco. Another sunrise segment for the company is the Internet of Things. Cisco systems subsidiaries such as Webex and Jasper allow the company to service high-growth niche areas of the ever-changing technology industry. According to Kelly Kramer, Chief Financial Officer, Cisco Systems, “We did see growth in conferencing as we saw strong uptake with the COVID-19 environment. We also saw strong double-digit growth in AppDynamics and IoT software.”
Cisco has also been conducting regular share buybacks. The company now has 3.9% fewer shares outstanding than what it had in 3Q2019. The buybacks have boosted dividend yields as well.
Cisco stock price closed at $44.84 on 27th May 2020, up 5.8% for the month. Cisco stock dividend yield is currently at 3.21%.