(Reuters) – Cisco Systems (NASDAQ:) shares rose about 4% in early trading on Thursday after an upbeat fourth-quarter outlook signaled further stabilization in demand for networking equipment and benefits from a $28 billion deal with the cybersecurity firm. Splunk (NASDAQ:).
The world’s largest maker of networking equipment struggled with sluggish demand as customers adjusted stockpiles due to a buying frenzy during the pandemic as well as ongoing supply chain obstacles.
“After the last few quarters of significant difficulty digesting inventory, we view these order numbers as positive,” Morgan Stanley analysts said in a note.
Cisco on Wednesday forecast fourth-quarter revenue of $13.4 billion to $13.6 billion, compared with analyst estimates of $13.23 billion, according to LSEG.
“We currently expect customers to complete installation of the majority of their equipment by the end of our fiscal year in July,” CEO Charles Robbins said during the earnings call.
Product orders were flat in the third quarter, excluding the impact of the Splunk buyout, compared with a 12% decline in the prior quarter.
Cisco was on track to add nearly $8 billion to its market value on Thursday if pre-market gains continue.
The company is expected to benefit from the billions of dollars that US tech giants such as Microsoft (NASDAQ:) and Meta Platforms (NASDAQ:) are spending on data centers to support chatbots such as ChatGPT, which require large computing power . Cisco said Wednesday that three of the top four cloud computing companies are deploying its Ethernet and also reaffirmed a $1 billion ordering target for artificial intelligence products in fiscal 2025.
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The company raised its 2024 revenue forecast to a range of $53.6 billion to $53.8 billion, up from previous expectations of $51.5 billion to $52.5 billion.
SPLANK BOOST
Cisco completed its acquisition of Splunk in March as part of efforts to reduce dependence on its core networking business.
Including Splunk, revenue in Cisco’s security segment jumped 36% in the third quarter.
Overall gross margin in the third quarter was 65.1%, down from 63.4% in the same period last year.
Cisco said the acquisition will accelerate gross profit growth in the first fiscal year after the deal closes.