Cisco Systems Inc (NASDAQ:CSCO, ETR:CIS), the technology conglomerate, is expected to see product revenues decline throughout the 2024 financial year as its networking division struggles and its backlog eases.
Ahead of the group’s second-quarter update on Wednesday, Bank of America analysts have predicted product revenue will fall by 9%, 13% and 12% over the next three quarters.
Orders fell 20% year-on-year during the first quarter, with backlog falling by US$4.5 billion as it returned to “normal, historical levels”.
It’s believed a backlog of between US$4 billion and US$6 billion in 2023 helped the group’s product revenues lift by US$5.1 billion to US$43.1 billion, while also driving growth in the networking division.
“With backlog drawdown now offering limited support post-1Q, coupled with weak underlying spending initiatives, we believe growth will go through a steep correction in FY24,” Bank of America analysts said.
Over the weekend, the group was revealed to be planning on cutting thousands of jobs as part of a restructuring of the business.
Some 85,000 workers are employed by the network giant and although an exact figure of the proposed hasn’t been given, sources believe the announcement could come around the time of its earnings call.
“We believe the move is driven by Cisco's desire to preserve margins in FY24, in light of the weakening demand environment,” Bank of America said.
Experts at the bank rate the stock as “neutral” and offer a share price target of US$55, around US$5 lower than its current trading price.
However, the US bank believes its valuation is “relatively unassuming” and believes a 3.1% dividend yield and an 8.6% FCF yield should support it going forward.