Cisco reported its financial results for the first quarter of fiscal year 2025, ending October 26, 2024, reflecting a broad-based increase in product orders and strong profitability metrics despite a decline in total revenue.
The networking giant recorded revenue of $13.8 billion, which, although at the higher end of its guidance range, marked a 6% decrease year-over-year. This decline was driven by a 9% drop in product revenue, partially offset by a 6% increase in services revenue.
When excluding the impact of the recent Splunk acquisition, total revenue dipped 14% compared to the same period last year.
Cisco’s GAAP net income for the quarter stood at $2.7 billion, translating to $0.68 per diluted share, a decrease of 25% year-over-year. On a non-GAAP basis, net income was $3.7 billion or $0.91 per share, down 19% from Q1 FY2024.
Strong margins
The company attributed the GAAP figures to a recent $720 million tax benefit stemming from a U.S. Tax Court decision.
Cisco CFO Scott Herren stressed the company’s focus on “operating discipline” while making strategic investments, underscoring their intent to maintain growth.
Gross margin figures were a bright spot for Cisco, with GAAP gross margin rising to 65.9%, up from 65.2% a year earlier, while non-GAAP gross margin reached 69.3%, exceeding guidance expectations.
Product gross margin improved to 68.9% non-GAAP, while service gross margin hit 70.3%. These figures reflect the company’s emphasis on high-margin areas and disciplined cost management amid a shifting market.
APJC saw modest growth
By region, revenue performance was mixed. The Americas reported a 9% decline, while EMEA (Europe, the Middle East, and Africa) decreased 2%, and the APJC (Asia Pacific, Japan, and China) region saw a modest 1% growth.
In terms of product groups, Security showed impressive growth, jumping 100% year-over-year, boosted by the integration of Splunk. Observability revenue increased 36%, driven by demand for advanced network insights. However, core Networking revenue declined sharply by 23%, with Collaboration down by 3%.
CEO Chuck Robbins said, “Our customers are investing in critical infrastructure to prepare for AI,” pointing to an anticipated demand shift toward the company’s security and observability solutions in light of artificial intelligence and cybersecurity trends.
On a GAAP basis, operating expenses surged by 28% to $6.8 billion, equating to 48.9% of revenue. Non-GAAP operating expenses were up 9%, totaling $4.9 billion or 35.2% of revenue.
GAAP operating income fell 45% to $2.4 billion, with the operating margin sliding to 17.0% from 29.2% a year prior. The company’s non-GAAP operating income dropped by 12% to $4.7 billion, with a non-GAAP operating margin of 34.1%.
Cisco’s cash flow from operations was a strong $3.7 billion, a 54% increase over Q1 FY2024, attributed to favourable working capital changes. The company ended the quarter with $18.7 billion in cash and cash equivalents, a slight increase from the $17.9 billion it held at the close of fiscal 2024.
Q2 guidance for Cisco
Cisco returned $3.6 billion to shareholders this quarter through dividends and stock repurchases, paying out $0.40 per share in dividends and buying back 40 million shares at an average price of $49.56.
This approach seems to be aligned with the company’s ongoing capital allocation strategy, prioritising returns to shareholders while reserving capital for future acquisitions.
Cisco issued Q2 guidance, projecting revenue between $13.75 billion and $13.95 billion and GAAP EPS in the range of $0.51 to $0.56. For the full fiscal year, revenue is expected between $55.3 billion and $56.3 billion, with non-GAAP EPS guidance of $3.60 to $3.66.
During the Q1, the company said it completed the acquisitions of DeepFactor, a cloud-native application security firm, and Robust Intelligence, an AI security solutions provider.
The acquisitions are expected to bolster Cisco’s portfolio in cybersecurity and AI, positioning the company to meet emerging demands in network security and data protection, said a senior executive.
