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Telecommunications equipment industry bellwether and Dow-30 component Cisco Systems (CSCO - Free Cisco Stock Report) has reported in-line results for the fiscal first quarter (ended October 29th). Revenue was up 1% year over year, with product sales decreasing 1% and service revenue rising 7%. The total revenue result fell within management's prior guidance range of down 1% to up 1%. Profitability metrics were largely on par with the prior year's results. Non-GAAP earnings per share of $0.61 beat our $0.60 call and rose 3% year over year.

Cisco made progress in its initiative to grow recurring revenue by transitioning to software-based offerings. Indeed, deferred revenue related to recurring software subscriptions rose 48%.

Taking a look at performance by customer group, sales to enterprises grew 5%, commercial increased 1% and the public sector was flat. The big headline was a lofty 12% drop in sales to service providers, which are typically responsible for around a quarter of overall revenue. The company explained that many in this group have taken pause, owing to the fluctuating political landscape, potential regulatory hurdles, currency headwinds, and a focus on improving mobile network density as opposed to building out new infrastructure. The company does not expect the trend to reverse course over the near term, which helps explain the conservative January-quarter revenue guidance of down 2% to 4%.

Switching, the largest unit by revenue, experienced a disappointing 7% sales decline. Once again, many campus customers held off purchases owing to an uncertain macroeconomic background. The data center switching business, ACI, helped offset this somewhat, with 33% growth.

Surprisingly, the Routing unit delivered 6% sales growth, despite the aforementioned service provider weakness. This was a significant improvement from the 6% decline recorded in the July period.

Collaboration sales were 3% below last year's tally, as weakness in TelePresence more than offset 10% growth in conferencing products, namely WebEx. Further, Data Center and Wireless sales fell 3% and 2% respectively.

The top-performing unit was Security, with 11% growth. That marked the fourth-consecutive quarter with a double-digit advance. The improvement came thanks largely to advanced security and web security products.

There was little from this earnings release for investors to hang their hats on. The tone of management's commentary does not suggest material improvement on the service provider front will be forthcoming. Although proposed infrastructure policy by the incoming Trump Administration would likely benefit Cisco, that outcome is far from a foregone conclusion. While these shares are a decent choice for conservative investors, those with more appetite for risk will likely find better options elsewhere right now.

About The Company: Cisco Systems Incorporated is a leading provider of Internet Protocol-based networking and other products for transporting data, voice, and video across geographically dispersed local-area networks, metropolitan-area networks, and wide-area networks. Devices are primarily integrated by Cisco IOS Software and include Routers, Switches, New Products, and Other. Provides services associated with these products.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.