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Battered Cisco weathers another stormy quarter

No turnaround in sight for weak sales in emerging markets

Ciscoblood

Cisco CEO John Chambers said he was "pleased" with the company's performance for the third quarter of its fiscal 2014 – and it beat analysts' expectations yet again – but the networking titan's actual earnings were not much better than last quarter's gloomy results.

Revenues for the three months ending on April 26 were $11.55bn, which was an improvement over the previous sequential quarter but a 5.5 per cent drop from a year ago. The 36 prognosticators polled by Yahoo! Finance expected revenues of $11.38bn, on average, although some were hoping the company would crack $12bn.

Cisco's net income, on the other hand, was down 12 per cent year-on-year, to $2.18bn. Excluding certain items, that led to earnings of $0.51 per diluted share, which was flat from the previous year's quarter. Again, however, that beat the $0.48 per share that the analysts were hoping to see.

"Our financial results exceeded the guidance we provided last quarter as we demonstrated clear progress on returning to growth," Chambers said in a canned statement.

And some areas of Cisco's business did indeed grow. Total orders from the US and the UK were both up 7 per cent from the previous year's quarter, and orders from Northern Europe were up 4 per cent.

Among the bright spots, orders of high-end routers grew in the quarter for once, although the company admits that the figures are "still lumpy" – meaning no one knows for sure what the next quarter will bring.

But numbers don't lie, and Cisco's earnings this quarter yet again displayed the networking kingpin's weakness in less-developed economies, where customers are passing on Cisco's pricey kit in favor of more affordable products from the likes of China's Huawei and ZTE.

Sales to emerging markets were down 7 per cent compared to Q3 of 2013, while sales to the "BRIC+M" sector – meaning Brazil, Russia, India, China, and Mexico – were down 13 per cent. Both figures are worse than the declines Chambers & Co saw in the previous sequential quarter.

Those numbers continue to bode poorly for Cisco, which like many technology companies had been eyeing developing markets as the key to continued growth as sales cool off in more mature ones. The truth is that the networker's net income for the first nine months of fiscal 2014 is down 27.3 per cent, as compared to 2013.

But investors mainly seemed pleased that the company once again beat its own guidance, and that of the Wall Street wizards. While Cisco's share price sagged slightly during the day, it climbed 7 per cent in after-hours trading. ®

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