Networking hardware company Cisco Systems (NASDAQ:CSCO) will report its fiscal third-quarter results after the market closes on Wednesday, May 15. The company has so far felt little pain from the U.S.-China trade war and other macroeconomic developments, but that could change as tariffs are ramped up on both sides. Cisco's guidance may not be as positive as its recent results.

What happened last time

Cisco grew both revenue and earnings in the second quarter, with growth across all of its core product segments.

Metric

Q2 2019

Change (YOY)

Compared to Average Analyst Estimate 

Revenue

$12.4 billion

4.7%

Beat by $30 million

Non-GAAP earnings per share

$0.73

15.9%

Beat by $0.01

Data source: Cisco. YOY=year over year.

Excluding the impact of the divested service provider video software solutions business, Cisco's revenue would have grown by 7% year over year.

Cisco's infrastructure platforms segment produced $7.13 billion of revenue, up 6% year over year. This is by far Cisco's largest segment, and includes the core switching and routing businesses as well as wireless and data center products.

Applications revenue was $1.47 billion, up 24% year over year, while security revenue was $658 million, up 18% year over year. Revenue from services was flat at $3.17 billion.

A combination of higher revenue and share buybacks helped boost Cisco's per-share earnings. The outstanding diluted share count was down 8.5% year over year in the second quarter, driving a significant chunk of Cisco's per-share earnings growth.

What analysts are expecting

Cisco expects revenue to grow by 4% to 6% in the third quarter, excluding the divested SVPSS business. Revenue growth will be a bit lower on a reported basis.

Metric

Average Analyst Estimate

Change (YOY)

Revenue

$12.9 billion

3.5%

Non-GAAP earnings per share

$0.77

16.7%

Data source: Yahoo! Finance. YOY=year over year.

One thing that will certainly come up in Cisco's third-quarter conference call is the trade war between the U.S. and China. Cisco CEO Chuck Robbins said during the second-quarter call that macroeconomic issues hadn't had any real effect on the company: "First of all, I would tell you that it certainly is one of the more complex macro, geopolitical environment that I think we've seen in quite a while with all the different moving parts. But to be honest, from the first day of the quarter to the last day of the quarter, we saw zero difference."

Two shipping containers hanging in midair, one painted with U.S. flag and the other with the Chinese flag.

Image source: Getty Images.

Cisco may not be so lucky as it moves through the rest of 2019. The U.S. raised the tariff rate on $200 billion of Chinese goods last week, from 10% to 25%, prompting China to retaliate with raised tariffs of its own. President Donald Trump has threatened to enact 25% tariffs on the remaining Chinese imports, which would likely lead to further retaliation from China. The prospect of higher prices on Cisco's networking gear could prompt customers to delay or reduce orders, which would threaten the company's streak of revenue growth.

Cisco's third-quarter results should be solid, but its guidance may reflect increased caution. The stock has gained about 18% this year, including a very rough performance on Monday as the broader market slumped. That rally could be derailed if Cisco starts to feel some pain from the U.S.-China trade war.