Cisco CEO Says It’s 'Firing On Multiple Cylinders' In The Face Of Geopolitical Obstacles

Cisco Systems is pleased with its aggressive transition to a software model, and geopolitical factors aren’t standing in the tech giant's way.

"We have built a resilient growth engine that is firing on multiple cylinders. Our strategy of expanding our portfolio while investing in our core markets is delivering unprecedented innovation for our customers," said Cisco CEO Chuck Robbins during the company's Q2 2019 earnings call on Wednesday evening. "Our teams have executed quite well in terms of the very complicated macro and geopolitical climate we find ourselves in."

Geopolitical issues, including the U.S.-China trade war and the 35-day government shutdown in the U.S. during the vendor's second fiscal quarter, were top of mind as potential hindrances to tech earnings, but the tariffs and the shutdown, according to Robbins, didn't impact the tech giant's second quarter.

"It certainly is one of the most complex macro-geopolitical environments we've seen in quite a while, but to be honest, from the first day of the quarter to the last, we saw zero difference and very steady demand throughout the quarter," he told investors.

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While tariffs haven't affected Cisco materially yet, Wall Street has been keeping an eye on struggling Chinese telecom equipment provider Huawei. Robbins fielded questions around the potential global opportunity for Cisco as more countries ban the use of Huawei products on their 5G network buildouts.

"I would put our innovation up against [Huawei's] and anyone else's in the world right now. Our performance in EMEA and APJC over the last few quarters -- we are not only holding our own, but we are competing and winning."

Breaking down revenue by geographic segment, Americas was up 7 percent; Europe, the Middle East and Africa rose 8 percent; and Asia Pacific, Japan, and Greater China increased by 5 percent.

Cisco's product revenue saw a 9 percent bump up during Q2 2019 from $8.71 billion to $9.27 billion. Service revenue climbed up 1 percent to $3.18 billion from $3.17. The company's Applications business segment, which includes AppDynamics and WebEx, grew by 24 percent year-over-year to $1.47 billion.

The Security and Infrastructure Platforms segments were also bright spots on the balance sheet for the vendor. Security rose 18 percent to $658 million, and Infrastructure increased 6 percent during the quarter to $7.13 billion.

For partners and end customers, Cisco is working on extending the reach of its intent-based networking with subscription-based offerings, giving end users a more consistent IT architecture across every domain, Robbins said.

Cisco has committed to growing its software sales to account for 30 percent of its business over the next three years. Right now, software-based revenues are growing and Cisco is continuing to make progress on that front, according to Kelly Kramer, Cisco's executive vice president and CFO, who said that Cisco is continuing to make progress on that front.

Cisco completed the divestiture of its Service Provider Video Software Solutions (SPVSS) business during the second quarter of fiscal 2019 on October 28, 2018. The company's revenue, non-GAAP financial information, and Q3 FY 2019 guidance were adjusted to exclude the SPVSS business from prior periods for comparative purposes, the company said.

For the second quarter that ended Jan. 26, 2019, Cisco reported revenue of $12.45 billion, up 7 percent year-over-year from $11.7 billion, and adjusted earnings of 73 cents per share, down from last year's result of $1.78. Net income for the second fiscal quarter on a non-GAAP basis was $3.3 billion, compared to $3.1 billion in Q2 2018.

Cisco beat Wall Street's revenue expectations of 4 percent revenue growth year-over-year of $12.41 billion and expected earnings per share of 72 cents.

During the quarter, Cisco completed its acquisition of privately-held Luxtera Inc, a semiconductor company, as well as Singularity Networks, a privately-held network infrastructure analytics company.

CIsco’s stock rose nearly 4 percent to $47.50 in after-hours trading.