by Zeus Kerravala

Networking giant Cisco Systems Inc. reported good news/bad news numbers in its fiscal first-quarter 2024 results this week, handily beating expectations but lowering its outlook.

Revenue and earnings for the quarter were $14.67 billion and $1.11 per share, respectively, compared with Street expectations of $14.61 billion and $1.03 per share. However, Cisco's outlook was lower than expected. The company sees full-year sales for 2024 between $53.8 billion and $55 billion, below its previous estimate of $57 billion to $58.2 billion. This dragged the stock as shares fell over 11% in after-hours trading.

The numbers are the numbers, and though Cisco put up a strong beat, a lowered outlook always spooks investors. However, the numbers don't always tell the full story. Here are five thoughts that dive deeper into Cisco's quarter:

Slowdown caused by macro or airgap?

On the earnings call, Chief Executive Chuck Robbins (pictured) explained the airgap in sales is from customers pausing purchasing to deploy the products they have been buying over the past three quarters. During the Q&A, Amit Daryanani from Evercore asked Cisco management why they felt this was a temporary pause versus a larger macro issue. Robbins gave several solid proof points explaining why the company felt this way.

One of the more interesting ones is that Cisco's shift to a software business brings better visibility. He cited that historically when customers buy Meraki equipment, there is typically a one- to two-quarter delay in activating the products. Another supporting data point is that Cisco saw an uptick in its transactional advanced services, which include implementation services. This indicates that customers are looking for Cisco to help them deploy previously purchased products.

It's worth noting that an implementation pause is consistent with my research. Customers and channel partners have told me that the availability of products following a long period of supply chain issues caused customers to overpurchase to ensure they have the products even if they don't need them at this very moment.

Has security turned the corner?

Historically, security dominance has been to Cisco as Moby Dick has been to Captain Ahab. Cisco is, by far, the world's most dominant network vendor and many security products are attached to the network. Also, recent trends, such as XDR and SSE, heavily depend on the network.

With these being true, why has Cisco never dominated the security industry? I don't think any vendor will achieve the same level of security share as Cisco in networking, but Cisco's goal has been to become the de facto standard.

I do want to be clear that Cisco hasn't failed in security. The company currently does about $1 billion revenue per quarter in security, so 95% of security vendors would love to have Cisco's "problem." However, $4 billion of the $70 billion-plus security market is not Cisco's definition of success.

During the call, Robbins mentioned several times the company is expecting security to continue to grow and take share. He stated, "We expect meaningful positive results in the coming quarters." This begs the question, why are Robbins and the team so bullish?

The answer lies in the company's new platform strategy. At its recent Partner Summit event, Cisco took the covers off its three new security clouds, which bring together technology from multiple security products to simplify deployment while increasing efficacy. At Partner Summit, I talked to Chris Konrad, area vice president for global cyber for World Wide Technology, and he told me, "Cisco has always had good products, but they were a collection of best-of-breed products. This negated any kind of platform advantage. Introducing the security suites allows us to take an outcome-based approach to give customers the right technology versus sifting through many options."


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