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Grimly determined Cisco reports weak earnings

Revenue slips further but not below dim analyst expectations

Internet Security Threat Report 2014

Networking giant Cisco has reported weak results in line with its own muted expectations as it continues to face difficulties in emerging markets.

The technology bellwether reported a net income of $2.5bn on Wednesday, representing an earnings per share of $0.47 on sales of $11.16bn for its fiscal second quarter, which beat analyst estimates of revenues of $11.03bn and earnings of $0.46 per share.

This, compared with a net income of $2.9bn and revenues of $12.1bn in the previous sequential quarter, during which Cisco was hit badly by a slump in sales in China.

Cisco had already warned Wall Street last quarter that it expected the next few months would be "challenging," but the company seems to have lined up the numbers to scrape past estimates from the duly warned analysts.

That doesn't stop the numbers being ugly, mind – Cisco's net income was down 7.4 per cent on the $2.7bn it pulled in the same quarter a year ago.

"We delivered the results we expected this quarter. I'm pleased with the progress we've made managing through the technology transitions of cloud, mobile, security and video," read chief executive John Chambers grim canned statement.

Alongside the results, the company said it was upping its quarterly dividend to $0.19 per share.

During the quarter, Cisco launched Application Centric Infrastructure, its new software-defined networking technology. It also completed its acquisition of Whiptail and SDN-killer Insieme Networks, and inked a variety of deal with various governments around the world, the company said in a release.

Though it has new products in the market, Cisco is facing weakness in strategically important markets.

"We saw the impact of emerging markets, service provider, and high-end product transitions," Chambers said on a call discussing the results. "We are managing through the economic product cycles."

During the quarter, Cisco saw sales to emerging markets decline 3 per cent compared with 12 per cent in the previous quarter. However, sales to BRIC countries (Brazil, India, Russia, China) and Mexico fell a further 10 per cent.

"Emerging markets remain challenged," Chambers said.

As enterprise sales have stagnated in Europe and grown slowly in other developing markets, many top vendors have pinned their hopes for future earnings growth on buyers in China.

It seems that Cisco, like IBM and others, is now experiencing the unpleasant reality that China has many homegrown technology companies who appear to be displacing Western IT companies in the People's Republic – and in other emerging markets, as well.

Service provider orders declined 12 per cent, Chambers said, though Cisco's data center business was up.

To deal with this expected period of lower growth, Cisco has already cut some 4,000 staff to shore up future earnings. There may be more on the way: Cisco expects revenue to fall a further 6 to 10 per cent. The company's shares were up 0.6 per cent in after-hours trading. ®

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