Cisco Avoids Negative Impact Of Tariffs -- WSJ

By Jay Greene and Maria Armental 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 15, 2018).

Cisco Systems Inc. is one of a few tech giants under threat from the Trump administration's trade fight with China, but the company said it has evaded damage from tariffs so far.

"I haven't had one conversation with any customer around the tariffs at this point," Chief Executive Chuck Robbins told analysts Wednesday after the networking-gear company reported its fourth-consecutive quarter of growth following eight quarters of declines.

Still, the company is taking steps to mitigate possible financial fallout from a tariff increase scheduled for the start of the new year, moving some manufacturing away from China.

A collection of switches and routers, some of which Cisco makes in China and imports to the U.S., were hit with 10% tariffs that went into effect in late September. A Credit Suisse analyst had speculated Cisco might actually get a bump in revenue as customers stock up on its products made in China ahead of even steeper tariffs slated to go into effect next year.

Cisco reported revenue rose 7.7% to $13.07 billion, topping Wall Street's forecast of $12.86 billion. Shares, which have outperformed the market with a 16% increase this year, rose 4.9% after hours, due in part to growth in the flagship routers-and-switches business.

While Cisco hasn't felt any pain yet from tariffs, that could change in January when they are scheduled to jump to 25%. The increased cost would be a "slight headwind" in the current quarter as it would hit with one month left in the period, Finance Chief Kelly Kramer said in an interview.

Cisco will try to pass the costs to customers, she said, but if they balk and Cisco has to absorb the impact, "it would be a significant margin hit for us."

The company is working to move some manufacturing of tariffed goods from China to its plants in other countries, including Mexico, Ms. Kramer said. That shift could come as soon as May, she said.

Mr. Robbins told analysts he saw reason for hope in the resumption of trade negotiations between the U.S. and China in recent days.

The company expanded its restructuring efforts in the just-ended quarter, resulting in $300 million in pretax charges. That would add to a $300 million pretax restructuring hit it announced six months earlier. Cisco said it laid off nearly 500 workers this month in customer support as part of the expanded plan.

Cisco has sought to offset sluggishness in its legacy networking-gear business by acquiring software startups, such as its $2.35 billion deal for Duo Security Inc. earlier this year. Still, revenue from its infrastructure-platforms business -- the company's largest -- rose 9% to $7.64 billion.

Security-segment revenue rose 11% to $651 million. Revenue in its applications business rose 18% to $1.42 billion.

Cisco said its fiscal first-quarter profit rose 48% from a year earlier to $3.55 billion. Excluding stock-based compensation and other items, profit rose to 75 cents a share. Analysts polled by FactSet expected a profit of 72 cents a share on an adjusted basis.

For the current quarter, Cisco expects adjusted per-share profit of between 71 cents and 73 cents, with revenue rising between 5% and 7%.

Write to Jay Greene at [e-mail] and Maria Armental at [e-mail]

(END) Dow Jones Newswires

November 15, 2018 02:47 ET (07:47 GMT)

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