What happened

Shares of Cisco Systems (NASDAQ:CSCO) slipped 10.4% in August, according to data from S&P Global Market Intelligence. The stock fell after the company published fourth-quarter results that arrived with disappointing guidance. 

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Cisco published fourth-quarter earnings on Aug. 12, posting revenue and earnings for the period that came in ahead of the market's expectations. The network technology giant reported adjusted earnings of $0.80 per share on revenue of $12.15 billion, while the average analyst estimate had called for per-share earnings of $0.74 on revenue of $12.08 billion. However, the weaker-than-anticipated guidance overshadowed the sales and earnings beats, and Cisco stock moved lower following the earnings report. 

A man walking through a data center.

Image source: Getty Images.

So what

Cisco's sales fell 9% year over year in the fourth quarter, and adjusted earnings for the period declined 4%. Full-year revenue declined 5% year over year to come in at $49.3 billion, but adjusted earnings per share for the year rose 4% to hit $3.21. While the company did beat Wall Street's targets in the fourth quarter, it's clear that the business is facing some significant headwinds, and management signaled that things will likely get worse before they get better. 

Now what

Cisco expects first-quarter sales to decline between 9% and 11% year over year, and adjusted earnings for the period are projected to come in between $0.69 and $0.71 per share -- a decline of approximately 16.7% at the midpoint of the target. 

Cisco has invested heavily to build its software-focused subscription streams revenue and diversify the business away from being overly focused on its switch and router hardware, but the coronavirus pandemic and resulting economic conditions have led to a slowdown in enterprise spending that's pressuring sales. The company has a strong balance sheet and advantages in the network technology space that could pave the way for new services that can help power a return to growth, but it looks like business performance will continue to be pressured in the near term. 

Cisco trades at 13.7 times this year's expected earnings and has a dividend yield of roughly 3.4%.