Cisco Shares Sink on Lackluster Revenue Forecast
Cisco gave a lackluster sales forecast that indicated the U.S.-China trade dispute and a slowing global economy are leading companies to hold off on updates of their computer networks, according to Bloomberg.
Sales in the fiscal first quarter will be flat to up 2% from the same period a year earlier, the company said in a statement. That implies revenue of as little as $12.9 billion, compared with analysts’ average estimate of $13.4 billion. Adjusted profit will be 80 cents to 82 cents a share.
CEO Chuck Robbins is trying to turn Cisco into more of a software and services company, but the company is being buffeted by the trade war and its impact on corporate spending. The company still gets most of its sales from machines that are the backbone of the internet, making it an economic bellwether. During a conference call with analysts, the CEO said customers were being cautious due to trade tensions.
In the fiscal fourth quarter ending July 27, total orders were flat. Emerging markets orders were down and the Asia Pacific region saw a decline of 8%, Chief Financial Officer Kelly Kramer said on a conference call with analysts.
While Cisco gets less than 3% of revenue from China, business there has dropped “dramatically,” Robbins said. State-owned enterprises and some Chinese telecom providers that had used small amounts of Cisco machinery are not interested in bids from the company amid the current trade tension, he explained.
Orders in the Americas and Europe still grew, albeit slowly. Orders from service providers, such as telecom and cable TV operators, slumped 21%, while government and commercial customers ordered more gear than they had a year earlier, Cisco said.
Cisco’s hardware business generated sales of $7.88 billion, a gain of 6%. Applications, its software unit, was up 11% at $1.49 billion and security revenue jumped 14% to $714 million. Fiscal fourth-quarter net income fell to $2.2 billion, or 51 cents a share, from $3.8 billion, or 81 cents, a year earlier.
Revenue was $13.4 billion, a seventh quarterly expansion. Excluding certain items, Cisco posted profit of 83 cents a share, compared with the average analyst estimate of 82 cents, according to data compiled by Bloomberg.