International Circuit
Cisco Earnings Foreshadow Slowdown In Tech Spending
Cisco blamed political turmoil on the world stage for a slowdown in tech spending that will drive the company’s overall revenue down in the current quarter.
The latest Cisco earnings report, released this week, reflected a “pause” in spending by companies globally, Cisco CEO Chuck Robbins told financial analysts. The number of product orders in the quarter ended Oct. 26 fell in three customer segments — enterprise, commercial and service provider. Only the government sector showed positive growth.
“It feels like there’s a bit of a pause [in spending],” Robbins said during the company’s quarterly earnings call.
The slowdown led to only a 2% increase in revenue, to $13.2 billion in the first quarter of the 2020 fiscal year. Revenue in the previous quarter rose 6% year over year. For the current quarter, Cisco said revenue would drop between 3% and 5%.
Tight control on expenses last quarter drove net income up 5%, to $3.6 billion. Cisco earnings per share rose 12%, to 84 cents.
Global strife causing business jitters
Cisco, considered a bellwether of tech spending, reported in August a global weakening in demand. But while spending fell in the service provider customer segment, the rest had positive growth.
Last quarter, Cisco continued to struggle in the Chinese and service provider markets. Revenue in China fell 31%, compared with a 26% drop in the quarter ended July 27, while service provider orders fell 13%.
Service provider spending has fallen for several quarters. However, Cisco has predicted that sales would pick up next year, when it expects carriers to start overhauling their networks to support plans for 5G business services.
Within Cisco, the decrease in service provider sales is reflected in lower enterprise routing revenue. Also, enterprises are spending less on data center routing as they move their business software to public clouds.
“Cisco’s product lines are strong,” Patrick Moorhead, principal analyst at Moor Insights & Strategy, said. “But the company’s core market, enterprise routing, isn’t growing a lot.”
Cisco predicts spending recovery
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