Looking at the numbers, CSCO posted Q4 EPS of $0.70, up 15% year/year, beating consensus by a penny. The beat comes despite the fact that Non-GAAP gross margin slipped a bit to 62.9% from 63.7% in the year ago quarter. Management commented that higher component costs continued to have a negative impact and that it expects that to continue to be the case in the near term.
But demand has clearly accelerated, off-setting some of these margin concerns. Revenue climbed by 5.9% -- its highest growth rate since 2Q15 -- to $12.84 bln, ahead of the $12.76 bln expectation. In fact, the $12.8 bln in revenue was a quarterly record for CSCO. During the conference call last night, CSCO stated that momentum was broad-based across its portfolio.
That said, one especially notable area of strength was Infrastructure Platforms (+7% in Q4), which has proven attractive as customers have looked to simplify and automate their networks. CSCO has launched several new products in this arena over the past year, particularly in the areas of WAN and data center.
Another major tailwind for CSCO is a trend that sees customers move to multi-cloud environments -- something that is rapidly accelerating. As this transition progresses, the company hopes to seize a significant growth opportunity by redesigning its IT architecture and by enabling customers to build and manage an ever-increasing number of applications.
Continuing those efforts, in Q4, CSCO launched a hybrid cloud product with Google as well as a multi-cloud solution with NetApp (NTAP), providing further variety for customers seeking to adopt multi-cloud architecture.
Other areas of strength in the quarter included security (+12%), driven by network security, unified threat, and web security business performance. Switching also had another solid quarter as the ramp of Cisco’s Catalyst 9000 product took hold. About the only soft spot appears to be routing, which was lower due to weakness in SP routing.
In addition to the upside Q4 results, CSCO also guided for Q1 EPS and revenue above expectations at $0.70-$0.72 vs. the $0.69 consensus and revenue growth of 5-7% versus 3.6% estimates.
All in all, CSCO's performance certainly demonstrates that business is quite healthy right now, with momentum visible behind several of the company’s key product categories. On top of that, the company continues to deliver from a capital allocation standpoint, returning $7.5 bln to shareholders in the quarter through buybacks and dividends.