Networking equipment and software maker Cisco Systems (NASDAQ: CSCO – $44.91) reported mixed results for the fiscal first quarter and provided a cautious outlook on its operating environment, causing the shares to decline about 7% in early trading. Revenue came in at of $13.2 billion, up 1% from a year ago, slightly ahead of analysts’ consensus forecast at $13.09 billion. Revenue was up 4% in both the Americas and Europe, the Middle East and Africa, but down 8% in the Asia-Pacific region. Product revenue included 22% growth in security and 16% growth in applications, while infrastructure-platforms revenue was down 1%. Adjusted profits were $0.84 a share, three cents ahead of Wall Street’s consensus. China orders were down 31% year-over-year, as the trade tensions hurt demand, as some customers opted to choose domestic products over those from U.S. companies. While weakness in the global macro environment was more-broad based than in the previous quarter, management doesn’t expect any further deterioration but is not forecasting improvement either.
For the second quarter, the company sees revenue declining 3% to 5% on a year-over-year basis, which implies a range of $11.8 billion to $12.1 billion, below the Street consensus at $12.8 billion. Cisco is forecasting adjusted profits for the period of $0.75 to $0.77 a share, below the Street view at $0.79. The recent sell-off, however, has created an opportunity for long-term income investors to capitalize on Cisco’s earnings and dividend growth potential. Although the company faces near-term headwinds, such as U.S.- China trade tensions and weak service provider spending, it remains well positioned to take advantage of many growth drivers in the technology space such as security, 5-G, cloud computing, Internet of Things and more programmable virtual networks. The high-quality shares yield nearly 3% at current levels.