What to expect when economic bellwether Cisco reports quarterly results

Published Tue, Nov 15 20224:14 PM EST

Club holding Cisco Systems (CSCO) is set to report fiscal first-quarter earnings after the closing bell on Wednesday, and we'll be looking to see how the technology conglomerate has weathered gathering economic headwinds. Cisco, whose product offerings include networking hardware, software and telecommunications equipment, has long been considered an economic bellwether that sources a consistent revenue stream from a diverse set of industries including retail, health care, financial services and government. Analysts expect earnings-per-share to come in at 84 cents, up 2.4% from last year, while total revenue should climb 3.2% year-over-year, to $13.31 billion, according to estimates from Refinitiv. Here are the top 4 factors we're looking out for ahead of the print. Supply chain Analysts and investors will be closely monitoring Cisco's supply chain execution. This has been a chronic headwind for the company that has been exacerbated by China's ongoing Covid-19 restrictions, resulting in shortages of critical components. "There has been some degree of improvement in the component supply chain, however, CSCO still continues to see some of the most extended lead times for components among any other networking supplier," analysts at Loop Capital wrote in a note. Still, any further improvements could mean more upside to Cisco's first-quarter results. Enterprise spending Demand from enterprise customers has been holding up this year, despite the challenging global economic backdrop. And those "solid demand trends" look set to continue, according to Loop Capital. "Our recent checks and industry conversations highlight a strong demand outlook for CSCO's networking solutions within the Enterprise sector," the analysts wrote in a research note Tuesday. At the same time, as the economy slows, companies have become more cautious on how they allocate corporate funds. At the Club, we'll be looking to hear from management on whether Cisco's customers have reined in their budgets. Product orders Resilient demand for Cisco's products is reflected in its orders and backlog. And the company ended its 2022 fiscal year with a record backlog, providing it with greater visibility on future revenue potential. In addition, Cisco's remaining performance obligations (RPO), which represent its future contracted revenue recognized over the next 12 months, was more than $31 billion, with 54% revenue for the coming year. While total product orders fell 6% in the fourth quarter , this was up against tough comparables on last year's unexpected 31% growth in orders. Nevertheless, we'll be looking for signs of accelerating product order growth. "Cisco needs to address share losses across its most important segments and address its ability to innovate and attract talent for its growth segments," analysts at Bank of America wrote in a note Tuesday. Transition from hardware to software Cisco's transformation to software subscription should be a long-term growth catalyst for the company. So, we'd like to see Cisco's progress on transitioning from lumpy hardware sales to recurring software subscription sales, a move that could bolster revenue. This shift will be a major focus for the quarter, as the tech industry continues to move toward a cloud and subscription software model and away from boxed software. Analysts at JPMorgan "remain positive Cisco's transformation toward software subscription and services-based revenue, which in aggregate should drive a re-rating in shares, which have historically and recently traded at a discount to software and peer companies as well as the market." Bottom line Cisco's products and services support the trends driving digitization, including hybrid cloud, 5G and the internet of things, which enterprise networks need to operate efficiently in today's work environment. As these trends accelerate, demand for Cisco's services will continue to be strong. At the same time, a weaker global economy could hold back enterprise spending and dent Cisco's revenue. We also recognize that Cisco's primary pain point remains the supply chain. But this is out of the company's control, and should be seen as a temporary headwind. More importantly, we know Cisco has resilient demand because its order backlog is massive. Cisco has a company profile that checks the Club's investment case of 'making stuff and doing things,' while delivering profits and returning cash to shareholders, which is increasingly relevant in today's market as investors rotate out of Big Tech. Cisco's stock has been punished this year, along with the rest of the tech sector, and is down 28.8% year-to-date. The stock closed out Tuesday up 0.36%, at $44.90 a share. We currently have a 2 rating on the stock, which we'll reassess following Wednesday's results. (Jim Cramer's Charitable Trust is long CSCO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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A man passes under a Cisco logo at the Mobile World Congress in Barcelona, Spain February 25, 2019.

Sergio Perez | Reuters