Cisco Systems, Inc. (NASDAQ: CSCO) on 13th May 2020, announced the result of Q3 2020. COVID-19 has impacted the revenue of Cisco, its revenue in the third quarter has declined by 8% with respect to the same period in the previous quarter.
- Revenue: Total revenue earned in Q3 2020 was $ 11,983 million, down by 8% from $ 12,985 million earned in Q3 2019. Product revenue has declined by 12% and service revenue has increased by 5%.
- Gross Margin: On GAAP basis total gross margin in the third quarter of 2020 was 67.7% with respect to 66.3% in the same period of the previous year. Product and service gross margin was 64.9% and 63.7% with respect to 63.1% and 62% in the third quarter of 2019.
- Operating Expense: In Q3 2020, the total operating expense of cisco was $ 4,357 million down by 6% from $ 4,460 million in the same period of 2019. Operating expense was 36.4% of total revenue.
- Operating Income: Operating income of Cisco in the third quarter of 2020 was $ 4,357 million with respect to $ 4,460 million in the third quarter of 2019, down by 3%. Operating margin in this quarter was 28.5%.
- Provision for Income Tax: In Q3 2020, provision for income tax was $ 670 million with respect to $ 571 million in Q3 2019. Tax provision rate in this quarter was 19.4%.
- Net Income: Cisco in the third quarter of 2020 reported net of $ 2,774 million, decreased by 9% from $ 3,044 million in the third quarter of 2019.
- Cash and cash equivalents and investments: Total Cash and cash equivalents and investments at the end of the third quarter of 2020 was $ 28,574 million. In the third-quarter of 2019, cash and cash equivalents and investment amount was $ 33,413 million.
Cisco is making a contribution to helping the community to fight COVID-19. The company has committed $ 300 million to non- profits, first responders, and government. Around the world Cisco is also providing protective equipment to hospital workers including N95 mask and face shield, printed using a 3D printer by cisco volunteers.
As lockdown has been imposed by the government, cisco has allowed its employee to work from home. Due to the flexible work policy and technology developed by Cisco which allowed the organization to stay connected, secure, and productive, it became possible for 95% of the employees to work from home. For rest 5% of the employees who are required to work in the office, the company claims that all the necessary precautions have been taken care of for the health and safety of the employees.
In most organizations, employees are working from home and due to crisis companies are also facing cashflow challenges. To help its customer and partners cisco has introduced a variety of free trails for WebEx and security technology. WebEx is an application used for online meetings, webinars, online presentations, and online courses.
On 14th April 2020, Cisco announced a Business Resilience program in which the company has financed $ 2. 5 to provide access to solutions for different organizations for running their business, safely of the employees, and help different communities during this crisis. Under this program 90 days payment holiday is provided and 95% of the payment can be deferred till 2021, this will the organization in protecting their business and increase cash flow. Chuck Robbins, Chairman and Chief Executive office of Cisco is in its quarterly report says “During this extraordinary time, our priority has been supporting our employees, customers, partners, and communities, while positioning Cisco for the future. The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”
In the third quarter of 2020, the company was able to increase its SaaS-based subscription. In this quarter total subscription was 74% compared to 65% year ago. But Cisco also faced many manufacturing challenges. Cisco’s largest segment infrastructure platform which includes router and networking switches, witnessed a decline in revenue by 15%. In Q3 2020, revenue generated by the infrastructure platform was $ 6,429 billion compared to $ 20, 496 million in Q3 2019. Application which consists of online software, also witnessed a decline in revenue. In Q3 2020, revenue generated by the application segment was $ 1,363 million decreased by 5% from $ 4,211 million in Q3 2019.
In the third-quarter of 2020, Cisco had closed the acquisition of Exablaze. This acquisition will provide opportunities to Cisco to manufacture advanced networking devices at reducing latency and improve network coverage. On 6th April 2020, the company announced that it will acquire Fluidmesh Networks at an undisclosed amount. Fluidmesh Network is a wireless solution provider, it has provided solutions for high-speed rail, mass transit, ports, etc.
In the third quarter of 2020, EPS of the company was $ 0.65 decreased by 6% from $ 0.69 years ago. The company has returned $ 2.5 billion through share buybacks and dividends to shareholders, the company has paid a cash dividend of $ 0.36 per share. Guidance issued by the company mentions earning for Q4 2020 between $ 0.57 and $ 0.62 and revenue declined by 8.5% to 11.5%.
Quarterly reports and guidance issued by the company, indicate that Cisco is a good position in the long term to serve in the product category of cloud, 5G, Wi-Fi 6, and High-Speed networking.