Cisco’s Outlook Dampened by China Slowdown, Trade Dispute
closed the business year with the largest revenue increase since 2013 but projected disappointing growth this quarter on lower spending from telecommunication companies and weakness in China.
Shares, which closed lower on Wednesday at $50.61, fell 8% to $46.78 in after-hours trading.
The networking-equipment giant expects revenue for the current quarter to be flat to 2% higher from the prior year, which was lower than what analysts had expected. The company also projected per-share earnings below analysts’ forecasts.
The largest drivers of the forecast, Cisco officials said during an earnings call Wednesday, are the continued decline in business from service providers, and China, a small part of its business but one that Chief Executive
said “dropped precipitously” with the continuing trade dispute.
He said Cisco has for years sold products to large carriers in China and state-owned enterprises. He said Cisco hasn’t been invited to participate in bids, “which is not surprising given the current situation.”
Cisco is considered a proxy for high-tech hardware demand, and analysts have been watching how the company navigates trade issues.
The Silicon Valley company, which outsources all of its manufacturing, has largely offset financial damage from tariffs by raising prices and moving contract manufacturing away from China. Mr. Robbins said the company was performing well “at a time of uncertainty.”
Cisco is the latest technology-equipment manufacturer raising concern about corporate information technology spending. Data-storage company
Inc. cut its full-year revenue forecast recently after it said it didn’t land the level of enterprise software licensing deals it had expected.
In Cisco’s case, Mr. Robbins said his company isn’t seeing a broad-based decline but is cautiously watching the situation.
“I don’t want to sound the alarms, but this was a massive shift that we saw,” the CEO said, noting that Cisco hadn’t seen the typical burst of energy in the close of its fiscal year.
Cisco has been bulking up its business through acquisitions, including proposed deals to buy equipment manufacturer
and closely held Voicea, a meeting-transcription-service provider. The $2.6 billion deal for Acacia, a maker of modules and semiconductors, is designed to enhance Cisco’s offerings to data-center operators and telecommunications-service providers.
Cisco’s quarterly profit fell 42% to $2.21 billion, or 51 cents a share, and reflected a reversal of a tax benefit that had been recorded last year related to the U.S. tax overhaul. The company’s income tax bill in the period ended July 27 was $1.5 billion after it recorded a $211 million benefit a year earlier. On an adjusted basis, profit rose to 83 cents a share from 70 cents a share. Revenue climbed 4.6% to $13.43 billion.
At Cisco’s core business, selling switches, routers and other networking equipment to businesses, revenue rose 6% to $7.88 billion, slightly ahead of analysts’ forecasts.
Revenue in its small but fast-growing security segment increased 14% to $714 million. Analysts had expected $740 million in revenue. Cisco is investing in its cybersecurity offerings, Mr. Robbins said on the conference call, calling it a top priority among customers.
Meanwhile, revenue from Cisco’s applications business, which includes videoconferencing and other products, rose 11% to $1.49 billion.
Cisco ended the most recent year with a $11.62 billion in profit and $51.9 billion in revenue, up 5% from the year earlier.
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