We welcome Cisco CEO's upbeat view on the economy, but remain cautious on future order growth

Published Wed, Jan 18 20231:41 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

The chief executive of Club holding Cisco Systems (CSCO) on Wednesday continued to strike a confident note on the economy, while indicating that the company's enterprise customers haven't notably pulled back on spending for its network routers and cloud offerings. Those are welcomed comments from the head of a company long seen as an economic bellwether, given the breadth of its customer base. "I think most people are generally — over the mid term and long term — very optimistic," CEO Chuck Robbins told CNBC Wednesday from the World Economic Forum's annual meeting in Davos, Switzerland. He added that most business leaders expect any potential recession to be mild. And even as many companies tighten their belts in anticipation of an economic slowdown, information technology (IT) budgets appear to be relatively resilient, Robbins said. "We haven't gotten a lot of that from our customers," Robbins said, referring to potential IT budget cuts. "Most of our customers are still moving forward." Cisco's customer base is largely comprised of other companies that purchase its hardware like wi-fi access points and its cloud and security software offerings. Robbins also said Cisco would continue to invest in cybersecurity technology. "Cybersecurity is No. 1...we're working on the portfolio," he explained, while suggesting the company would consider potential acquisitions in addition to "organic innovation" to bolster its cybersecurity products. "We are actually investing this year. We'll actually spend more money in the fiscal year we end in July than we did last year," Robbins noted. The CEO's comments come as a host of technology companies have been faced with slower revenue growth and forced to rein in spending through job cuts. Club holding Microsoft (MSFT) became the latest firm to do so Wednesday, announcing it was letting go of 10,000 employees , less than 5% of its global workforce. Amazon (AMZN) and Meta Platforms (META) announced job cuts late last year. CSCO 3M mountain Cisco's stock performance over the past three months. Bottom line Robbins has maintained a fairly upbeat outlook on the economy since last spring, even as recession fears intensified around him. We were pleased to hear him reiterate that view Wednesday. But despite Robbins' rosy view on the health of IT budgets, Cisco still faces some uncertainty in the coming quarters as it works through one of the largest backlogs in the company's history. The backlog, built up during the height of the Covid-19 pandemic amid supply-chain challenges, is providing a short-term cushion to its revenue stream, as shipping constraints ease. But it's still unclear whether new order growth will slow down the line, once those previously booked orders are fulfilled. Management has said that the company's backlog — combined with its more than $30 billion worth of remaining performance obligations, as of Oct. 29 — offers "increased visibility" into future topline results. Accordingly, in November, Cisco raised its full-year earnings and sales forecasts when it reported fiscal first-quarter results . We argued at the time that Wall Street should reward Cisco for the quality print. And since its November earnings report, Cisco shares are up more than 8%, compared with the S & P 500's gain of less than 1%. But the uncertain economic outlook remains a key question for Cisco's revenue stream going forward. We continue to maintain a 2 rating on the stock , meaning we'd wait for a pullback before buying additional shares of Cisco. The company is slated to report fiscal second-quarter results after the closing bell on Feb. 15. (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. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Chuck Robbins, CEO & Chairman of Cisco, speaking on Squawk Box at the WEF in Davos, Switzerland on Jan. 18th, 2023.

Adam Galica | CNBC