Stronger than expected product orders. While 1QFY22 revenues and 2QFY22 revenue guidance missed, 1QFY22 product orders came in better than expected at +33% y/y, versus +31% in the prior quarter. Service Provider orders accelerated to +66% y/y, compared to +40% in 4QFY21. Commercial market orders improved to +46% y/y and Enterprise orders improved to +30%. The only disappointment was Public Sector orders, at +10% y/y. From a geographic perspective, APJC orders came in +39%, EMEA orders were +36% and Americas orders were +31% year-over-year.

Revenue miss due to supply constraints and lower software and subscription growth. 1QFY22 sales came in at $12.90bn or up 8% y/y, which was slightly below our $12.94bn forecast. The 2QFY22 revenue growth guidance of 4.5%-6.5% y/y was below consensus at +7.3%. Part of the reason for the miss is supply constraints. However, we were also disappointed by Cisco's Software revenues, which were flat y/y compared to total revenues +8% y/y. Subscription revenues were +4% y/y, also under performing the growth rate of the overall business. 1QFY22 EPS of $0.82 and 2QFY22 EPS guidance of $0.80-$0.82 were solid compared to consensus due to lower than expected Opex.

Maintaining Hold. Cisco fell short of the 2QFY22 revenue guidance by ~2% compared to consensus, but maintained the full year FY22 revenue growth outlook of 5%-7%, adding risk to 2HFY22 estimates, we think. We have a Hold rating on CSCO because we think the long-term 5%-7% sales growth guidance will likely require significant M&A beyond the COVID-recovery year of FY22. Also, we are unimpressed by the long-term 5%-7% EPS growth guidance. Finally, we believe product orders likely peaked in 1QFY22. We are maintaining FY22 estimates and slightly lowering FY23. We are reducing our PT to $58, from $62, based on 16x our FY23 EPS forecast.

CSCO

Cisco Systems, Inc.

Communications Equipment

Strong Orders, Weak Rev Guide On Supply Constraints & Lower Subscription Growth