Cisco Q2 Earnings Preview: 5 Things Partners Should Be Watching For

Questions For Cisco Ahead Of Earnings Call

Cisco is set to provide the results of its second fiscal quarter Wednesday as channel concerns linger over the networking giant's handling of a product replacement effort currently under way.

Wall Street is estimating Cisco revenue for the quarter will hit $11.6 billion with earnings of 56 cents per share. During its first fiscal quarter earnings call in November, San Jose, Calif.-based Cisco gave a weak revenue guidance for its second quarter, projecting revenue to decline 2 percent to 4 percent year over year. The guidance was due to a slowdown in service provider spending as companies watch the U.S. and global political landscape, according to Cisco.

Here are five key areas that the company's partners should be waiting to hear more about.

Product Replacement Financial Impact

On Feb. 2, Cisco disclosed that multiple product lines – Nexus switches, ASA firewalls, ISR routers and Meraki cloud managed switches – contain a faulty clock signal component that causes systems to degrade over time, showing a propensity to fail after 18 months or longer in production. Cisco has warned that once the "component has failed, the system will stop functioning, will not boot and is not recoverable."

Any details on how many products have been affected or the financial impact on Cisco to replace the products have not been shared publicly or through CRN requests for more information. Partners will be keen to hear more information on the matter.

Channel Impact On Product Replacement

Cisco told CRN that it would not cover the on-site services costs of proactive equipment swap-outs for customers with Cisco products that are expected to fail after 18 months, even if those products are covered by a valid Smart Net services agreement that includes on-site service coverage. In addition, if a customer has a faulty product not under warranty or a valid services contract, Cisco will not provide a replacement product or the on-site replacement services.

Some channel partners say the problem will cost them millions of dollars and months to fix. Partners will be awaiting any advice Cisco CEO Chuck Robbins has for them regarding the matter.

Service Providers

The key reason why Cisco in November projected as much as a 4 percent revenue decline for its second fiscal quarter was due to a slowdown in service provider spending due to an uncertain political environment, according to Robbins. Service provider revenue declined 12 percent year over year during its first fiscal quarter.

"There are some service providers around the world – not necessarily in the U.S. – that are dealing with political dynamics and potential regulatory issues that just aren't clear," said Robbins during November's earnings call. It will be an important trend if Cisco's service provider business continues to drop in its second quarter.

Security Growth

Cisco's security business has been a shining star for the networking giant as the company strives to become the global market leader in cybersecurity. Cisco's security business has been growing in the double digits year over year for the past two quarters.

Robbins said Cisco's security business has a run rate of well more than $2 billion. With major security incentives for the channel, partners should see if Cisco's security engine is still running full steam ahead.

President Trump's Tax Repatriation?

CEO Robbins was one of several top technology leaders who met with now-President Donald Trump and his team in December for a roundtable discussion. Robbins said he had a "incredibly constructive meeting" with Trump and his team with discussions around trade, immigration, innovation, job creation and "issues of tax."

Cisco and its channel community said President Trump's previously proposed tax repatriation plan would spur massive growth for Cisco and its U.S.-based partners. Robbins said if Cisco repatriates its more than $60 billion in capital currently being held overseas back into the U.S., it would spur "a combination of dividends, buybacks as well as M&A activity." Repatriation could be a major boost to Cisco and its partners, so any positive news about the company's plan would be music to the channel's ears.