Covid-19 Impact: Cisco Expects Sales To Drop In The Coming Months

Summary

• Chuck Robbins, the CEO of Cisco Systems has pledged to reduce costs by $1 billion
• The share price of the company declined by 6 per cent on 12 August 2020 at the London Stock Exchange
• Delay in customers’ orders has led to fall in hardware-related sales by 16 per cent for May to July 2020

While it is impossible to escape the inevitability of Covid-19 impacting business, there is no doubt that the technology sector is one of the more unscathed sectors, due in part to the nature of how business is already conducted, and the pace of change that is demanded from those who thrive within it.

The significant challenge that the IT industry is facing presently is that due to the coronavirus pandemic, a lot of companies are forced to ask their employees to work from home (remotely) keeping the public health concerns in mind. There has been a massive loss in opportunity for many companies who export their technology products and services outside Britain, because of the travel restrictions across the world. Apparently. the spread of this deadly virus has led to cancellation of a lot of tech conferences, which could have been a great partnership opportunity for many companies to network, improve sales, and expand their horizons.

On 12 August 2020, Cisco Systems, a technology hardware and equipment company, had cautioned investors that it could be confronting a larger drop in sales in the coming months, despite the fact that it had not seen such downfall so far, despite the pandemic led lockdown.

In fact, due to a sharp decline in IT spending in the second half of the year, market experts also expect a downside in the IT sector. This led to a significant plunge of 6 per cent in the share price of Cisco Systems Inc (LON:0R0K) on 12 August 2020 to a value of USD 47.78.

The chief executive of the company, Chuck Robbins, said that the company demonstrated “operational resilience” for the three-month period ending in July 2020. He also said that in response of the expected downturn, it will be cutting costs by $1 billion through restructuring, incorporating occupation cuts, and early retirement for certain employees. This amount equals around 6 per cent of the company yearly operations cost. He has also suggested a reassessment of the company product direction, saying Cisco is “rebalancing” its research and development spending to focus on new areas.

Sales of equipment like servers, storage, and networking equipment recovering from the immediate effects of the pandemic, have made investors to expect a strong rebound in IT spending in the second half of 2020. However, those expectations have begun to blur following the earning season that saw numerous tech sellers take a careful note over the rest of 2020.

About the company

Established in 1984, Cisco Systems, Inc., engaged in designing and selling a range of technologies across networking, security, collaboration, applications, and the cloud. The products and technologies of the company include infrastructure platforms, applications, security and other products.

Financial Highlights of Cisco

Cisco has performed better than most of the analysts had expected for the recent quarter ending in July 2020. However, the company’s revenue was still down 9 percent in comparison to the previous year 2019. It recorded a quarterly revenue of $12.2 billion and pro forma earnings per share of 80 cents, which was ahead of the forecasted revenue and pro forma EPS, i.e., $12.08 billion and 74 cents respectively. Net income of the company increased by 19 per cent to $2.6 billion, impacted by the charges related to tax reforms.

Financial Forecast of Cisco

Cisco commented that it was likely to see a drop in revenue of 9 per cent to 11 per cent, for the first quarter of its current financial year, depicting revenue between $11.7 billion and $12 billion and profit pro forma from 69 cents to 71 cents per share. Most of analysts are expecting revenue of $ 12.25 billion and profit of 76 cents.

Below we have discussed the performances of some of the technology companies listed on the London Stock Exchange.

Based in the UK, Sage Group PLC is a technology company, which provides business software and solutions.

Sage Group PLC (LON:SGE) stock was trading at GBX 759.60 on 13 August 2020, at 3:21 PM, down by 0.21 per cent from its previous close of GBX 761.20. The 52-week low/high price was GBX 534.80/794.60. It was having a market capitalisation (Mcap) of £8,304.10 million. The volume traded at the time of reporting was 1,052,826. The company recorded a positive return on price, which was 1.82 per cent on a YTD (Year to Date) basis.

Avast PLC is a technology company that provides security software, offering consumer personal computer antivirus security software under the Avast and AVG brands.

Avast PLC (LON:AVST) stock was trading at GBX 564.50on 13 August 2020, at 3:26 PM, down by 3.10 per cent from its previous close of GBX 582.00. The 52-week low/high price was GBX 270.60/600.00. It was having a market capitalisation (Mcap) of £6,150.97 million. The volume traded at the time of reporting was 1,916,620. The company recorded a positive return on price, which was 22.63 per cent on a YTD (Year to Date) basis.

Rightmove PLC is a London, the United Kingdom based digital media company, which engages in the business of operating a Property Portal. The company’s provides information to prospective UK property buyers on a single platform.

Rightmove PLC (LON:RMV) stock was trading at GBX 631.60 on 13 August 2020, at 3:40 PM, up by 0.22 per cent from its previous close of GBX 629.60. The 52-week low/high price was GBX 400.10/701.20. It was having a market capitalisation (Mcap) of £5,497.05 million. The volume traded at the time of reporting was 638,475. The company recorded a negative return on price, which was 1.75 per cent on a YTD (Year to Date) basis.

Conclusion

Many exporters in the technology industry feel that it will be tough to stabilize after the downfall, unlike the 2008 global economic and financial meltdown. Back then, the central banks helped to improve the stability of the market, but now even the central banks are helpless. At the same time, there is a silver lining because of the competence of the UK technology sector. It holds long-term growth potential as it adept in providing high-tech tools and services to meet the rising IT needs across user sectors generated by the unprecedented crisis. The UK has a great track record for innovations in recent times. These new technologies will help re-shape the economy going forward.