Though the EU referendum took place over a year ago, Brexit, along with the shock wave it brought with it are certainly just as prevalent in society today as they were 12 months ago. Few people escaped the effects that the UK’s exit from Europe has brought with it, and Cisco is no exception. Reports of jobs being axed and falls in profit have made some potential buyers tense- unaware of how Brexit will affect their investments. There are still a multitude of factors that make Cisco’s products a worthwhile investment, and this article will cover just a few.
Protection for the UK
Ciscos European clients, from a segment known as EMEA (Europe, Middle East, and Africa) were responsible for a quarter of its sales this quarter just gone. In this region, profit fell by 2% on average. Falls in Russia and the UK can be seen as the main culprit for this decline.
What can often be mistaken, is that Cisco easily divides the segment by individual countries or states, which is not the case. Though CEO Chuck Robins not long ago stated that UK sales only account for 5% of Ciscos overall profit, it would be naive to state that sales across Europe won’t at all be affected. All businesses are forced to adapt and grow, no matter what the circumstances, Brexit is just one example where this will have to happen.
More so, the immediate effect of the UK’s exit on Cisco is expected to be minimal. We’ve seen huge recent developments in APJC (Asia Pacific, Japan, and China), here, revenue saw a 10% increase in 2016, thanks mainly to huge demand in China, which we cannot see decreasing any time soon.
Whether part of Europe or not, Cisco possesses one quality that has reliably assured its success for a long time- an ability to create free cash flow. 2012 onwards saw Cisco trailing a year 12-month free cash flow growth of almost $13 billion during its last quarter, and has time and time again outdone it’s more popularised revenue growth.
Cisco is additionally able to seek its own organic growth strategy and work with other corporations to enhance its higher-growth services. This is because it has more than enough FCF spare- following the payment of dividends and purchasing back stock.
Expansion in higher margin work
To get a truly valid overview, we must consider that over time Cisco been targeting higher-margin collaboration, service provider video, and cybersecurity services. Each one returned double-digit revenue this quarter just gone and was responsible for almost 20% of Cisco’s overall revenue.
Cisco is taking advantage of this success by developing these individual sectors and using their progression to expand its competitive moat by grouping with its network hardware. This method allows Cisco to assure its own rule in networking hardware to progress into higher growth markets.