Investing Club: We're inclined to stick with Cisco after disappointing quarter

Published Wed, Nov 17 20219:55 PM ESTUpdated Fri, Jan 14 202212:06 PM EST

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here .) Cisco Systems reported mixed fiscal first-quarter results after the closing bell Wednesday. Revenue increased 8% YoY to $12.9 billion and missed estimates of $12.984 billion, while adjusted earnings per share grew 8% YoY to $0.82 and exceeded estimates by one penny. Adjusted total gross margins look okay to us at 64.5%, down from 65.8% last year but slightly better than estimates of 64.1%. Cisco is currently experiencing pressure on its cost structure for a number of supply chain related reasons. Higher input and commodity costs are a factor as well. Although Cisco has prudently increased prices to offset these headwinds, the benefit is not immediate, and it will be recognized over the coming quarters. We can break down Cisco's total revenue into two categories: Product and Service. Product revenue increased about 11% YoY to $9.529 billion, barely missing estimates of $9.538 billion. Meanwhile, Services revenue was roughly flat YoY at $3.371 billion, short of the $3.442 billion estimate. Cisco breaks down its product revenue into five main buckets: Secure Agile Networks, Hybrid Work, End-to-End Security, Internet for the future, and Optimized Applications Experience. Secure Agile Networks revenue increased 10% YoY to $5.967 billion thanks to a double digit increase in campus switching, which is led by Cisco's Catalyst 9000 and Meraki switching offerings. The enterprise routing portfolio performed well too, growing in the high single digit range. Wireless was up double digits thanks to their WiFi 6 products and Meraki wireless offerings. Hybrid Work revenue fell 7% YoY to $1.109 billion. Revenues fell due to declines in Cisco's perpetual calling, meetings, and contact center offerings. But not all parts of the business fell as the ramp of communication platform as a service and growth in collaboration devices offset some of the declines. Importantly, Cisco's SaaS revenue (software as a subscription) grew in the high single digits. End-to-End Security revenue grew 4% YoY to $895 million as growth in cloud-based solutions was offset by the decline in their perpetual and hardware offer