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Global networking solutions provider Cisco (Nasdaq: CSCO) recently announced its first quarter results that outpaced market expectations. But the market headwinds are troubling the company as it reduced its outlook significantly for the coming year.

Cisco’s Financials

Cisco’s first quarter revenues grew 8% to $14.7 billion, ahead of the Street’s forecast of $14.61 billion. Adjusted EPS increased 29% to $1.11, ahead of the market’s estimate of $1.03.

By segment, software revenues grew 13% to $3.5 billion and product revenues grew 9% to $11.1 billion.

Total annualized recurring revenue grew 5% over the year to $24.5 billion and Remaining performance obligations (RPO) improved 12% to $34.8 billion.

For the second quarter, Cisco forecast revenues of $12.6-$12.8 billion and a non GAAP EPS of $0.82-$0.84. The market was looking for revenues of $14.19 billion and an EPS of $0.99. For the year, Cisco expects revenues of $53.8-$55.0 billion and an EPS of $3.87-$3.93. In August this year, it had forecast revenues of $57-$58.2 billion and an EPS of $3.19-$3.32. The market is forecasting annual revenues of $57.76 billion and an EPS of $4.05.

Cisco’s Splunk Acquisition

Cisco recently announced its largest ever acquisition with plans to acquire Splunk for an all cash deal of $28 billion. Data analytics solution provider Splunk offers software and solutions to enable search, monitoring, analysis, and visualization of data from various sources in real time. It is used for log management, security information and event management (SIEM), and machine data analytics, and is often used to monitor and troubleshoot IT infrastructure, security events, and business performance metrics.

The acquisition will help Cisco expand its presence in the observability and observability-related cybersecurity markets. Cisco should be able to improve its offerings within the Identity Threat Detection and Response (ITDR) by integrating Splunk’s products with Oort and Duo to offer an ITDR solution that emphasizes identity security. Cisco expects to complete the transaction by the third quarter of the current year.

Splunk was founded in 2003, and went public in 2012. For fiscal 2024, that ends in January, Splunk was looking to report revenues of $3.93 billion, compared with $3.65 billion reported a year ago. Splunk is also highly cash positive and has generated a free cash flow of $805 million over a trailing twelve month period. Cisco had tried to acquire Splunk last year for an estimated $20 billion.

Cisco’s stock is currently trading at $49.7 with a market capitalization of $20.2 billion. It hit a 52-week high of $58.19 in August and a 52-week low of $45.56 in May.

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