(Adds executive comments, background on NSA spying issue, share
By Sinead Carew
NEW YORK Nov 13 Cisco Systems Inc
warned its revenue would dive as much as 10 percent this
quarter, and keep contracting until after the middle of 2014, as
a backlash against U.S. government spying contributed to
plummeting demand in emerging markets like China.
The hit comes after former U.S. spy agency contractor Edward
Snowden exposed widespread surveillance by the National Security
Agency - in particular through Internet data, much of which is
transmitted via Cisco's network equipment.
China's Ministry of Public Security was reported in August
to be on the verge of launching a probe into Cisco rivals
including IBM Corp, Oracle Corp and EMC Corp
over security issues.
The scandal has also reverberated in other emerging markets
the NSA is said to have spied on including Brazil, Mexico, and
Cisco shares fell more than 10 percent in late trade after
it also missed its revenue target for its fiscal first quarter
just ended, where it saw a big drop in sales to telecom and
cable service providers as well as in emerging markets.
Chief Financial Officer Frank Calderoni said Cisco was most
affected by the political backlash in China but noted that it
was difficult to quantify how much of its revenue shortfall was
due to politics versus macroeconomic trends.
"Between economic and political issues that are occurring in
emerging markets we had a significant impact," Calderoni told
Reuters in an interview.
Cisco said revenue in its top five emerging markets
declined 21 percent led by a 30 percent drop in Russia, a 25
drop in Brazil and an 18 percent drop in both Mexico and China.
One of Cisco's biggest rivals is China's Huawei, whose equipment
has been shunned by the U.S. due to government concerns about
possible Chinese espionage.
Cisco Chief Executive John Chambers told analysts on a
conference call that in other countries, where the political
impact was nominal, Cisco was seeing a slowdown due to
Cisco is seen by investors as a strong indicator of the
general health of the technology industry because of its broad
IBM, which has a similarly broad base in technology
services, last month reassigned the head of its growth markets
unit after a surprisingly steep drop in quarterly hardware sales
"I'm floored by the guidance," said Northland Capital
Markets analyst Catharine Trebnick, noting that Cisco seemed to
be suffering from tough competition from lower priced rivals as
well as broader economic issues.
Cisco blamed a 13 percent decline in service provider
revenue on a delay in router sales due to its launch of new
routers, as well as a drop in sales of set-top boxes when it
decided to forego less profitable contracts.
"The last two weeks of the last quarter was really tough,"
Cisco was also hurt by domestic issues. Chambers said that,
while a recent partial U.S. federal government shutdown directly
cut a smaller than expected $50 million off Cisco's revenue, it
also further sapped confidence among non-government customers.
SOFTENING THE BLOW?
Cisco shares fell to $21.51 in late trade after the company
released financial targets that shocked analysts and investors.
The stock closed at $23.99 on Nasdaq and had already fallen 9
percent since its last quarterly report in August.
Cisco said revenue grew only 2 percent to $12.09 billion in
its fiscal first quarter ended Oct. 26, from $11.88 billion in
the year-ago quarter, below analysts' average estimate of $12.34
billion, according to Thomson Reuters I/B/E/S.
The company itself had forecast growth of 3 percent to 5
percent in the quarter.
It forecast a revenue decline of 8 percent to 10 percent for
the second quarter and said that it was targeting a return to
revenue growth in the first quarter of its fiscal year 2015.
To soften the blow, Cisco announced on the same day that its
board had authorized up to $15 billion in additional repurchases
of its common stock.
Cisco's profit dropped to $2 billion, or 37 cents per share
from $2.09 billion, or 39 cents per share.
Excluding unusual items the company earned 53 cents per
share compared with Wall Street expectations of 51 cents per
share, according to Thomson Reuters I/B/E/S.
It said second-quarter earnings per share (EPS) would be in
a range of 45 cents to 47 cents and forecast EPS of $1.95 to
$2.05 for the full fiscal year 2014, which will end in October.
(Reporting by Sinead Carew,; Editing by Christian Plumb,
Richard Chang and Alex Richardson)