By Nicola Leske and Edwin Chan
Feb 12 Cisco Systems Inc on Wednesday
forecast a 6 to 8 percent revenue slide this quarter,
underlining the network gear maker's struggle to rekindle demand
in emerging markets like China even as hardware spending
That gloomy outlook, though about in line with Wall Street
expectations, marks another severe decline in sales for the
former high-flying tech company, which has partly blamed its
poor run on a boycott of U.S. equipment after revelations of
American spying efforts globally.
Enterprise hardware spending is dwindling across the globe
as corporations cope with shrinking budgets, slowing or
uncertain economies and a fundamental migration to cloud
computing, which reduces demand for equipment by outsourcing
data management and computing needs.
Chief Executive John Chambers told analysts on a conference
call that the decline in emerging markets had slowed, but
cautioned that it was too early to speak of a trend. Chief
Financial Officer Frank Calderoni added that the situation in
China in particular was showing signs of improvement.
But that improvement is coming off an exceedingly low base.
The company reported second fiscal quarter results on Wednesday,
and orders in Brazil, India, China, Russia and Mexico were down
10 percent compared with the previous quarter when orders in
that region fell 20 percent.
"If you look at hardware spending across the board, it's
being negatively impacted not just by the negative spending
environment, but by the movement to the cloud," said FBN
Securities analyst Shebly Seyrafi.
"Hardware's glory days are behind us, now it's matter of
what can we do" to drive growth.
Cisco shares slipped 4 percent to $21.98 in after hours
trading, from a $22.85 close on the Nasdaq.
Its lackluster showing on Wednesday comes on the heels of
dismal results from some of the biggest corporations in
enterprise computing services.
Last month, IBM missed Wall Street's revenue
expectations for the fourth straight quarter. On Wednesday,
storage equipment maker NetApp also missed sales expectations,
sending its shares 4 percent lower.
In Cisco's case, it also faces an increasingly determined
rival in Huawei, which is dominant in China but getting more
aggressive beyond its home turf. Worryingly, product gross
margins slid to 48.7 percent in the fiscal second quarter, from
60.1 percent in the previous three months.
Cisco's outlook for the fiscal third quarter ending April
translates to a forecast for revenue of between $11.2 billion
and $11.5 billion, versus the $11.3 billion analysts expect on
That suggests the company may still miss Wall Street's
In the second quarter, revenue from routers and switching
equipment, which together make up slightly more than half of the
company's overall revenue, both contracted more than 10 percent.
The company reported revenue of $11.2 billion in its second
fiscal quarter, down from $12.1 billion a year earlier. Wall
Street on average expected Cisco to report of $11.03 billion,
according to Thomson Reuters I/B/E/S.
Asia Pacific sales fell 4 percent to $1.8 billion in the
fiscal second quarter ended January. But revenue in the Americas
led declines, with a 9 percent fall in the quarter.
Cisco reported non-GAAP earnings of 47 cents per share in
the second quarter, a penny better than the 46 cents expected.
The company also said its board had approved a dividend
increase of 2 cents to 19 cents.
"They put a pretty low bar for the second quarter. They
reached their numbers on the reset. It shows the environment has
stabilized," said Zeus Kerravalla at ZK research.