Cisco Execs on Trump: Cautiously Optimistic
On an earnings call Wednesday, Cisco's CEO and CFO expressed cautious optimism about the outlook for the company and business economy in general under Donald Trump's administration.
Following the US Presidential election, most CEOs are "pragmatic" and want to see how the incoming Donald Trump administration shapes up regarding business policy, CEO Chuck Robbins said.
He added, "I think that President-elect Trump appears to be business-oriented and is focused on driving the economy. And anytime the US economy improves seems to be good for us."
But he added, "I think there's consternation around the world related to the political environment and a little bit of wait-and-see."
CFO Kelly Kramer noted that Trump has said he will make a priority, in his first 100 days in office, out of providing incentives for businesses to repatriate foreign funds to the US. Kramer said she is "encouraged" but they "don't know details."
Cisco could use the money for stock buybacks, debt service, M&A or strategic investments, and will listen to investors on making decisions, the CFO said.
If recent feelings of optimism about the economy continue, it will "lift all boats," Kramer said.
As for the earnings: Weak service provider demand kept Cisco revenues down, as the company reported modest 1% year-over-year quarterly growth to $12.4 billion revenue on Wednesday. (See Cisco's Kanouff: Service Providers Squeezed Between Demand & Revenue.)
Service provider orders declined 12% year-over-year, which "largely" drove overall product order decline of 2% year-over-year, offset by a 7% increase in service revenue, Robbins said on the company earnings call Wednesday market close.
The company is progressing from a product-sales business model to a model that emphasizes recurring revenue, demonstrated by 48% year-over-year growth in product deferred revenue related to recurring software and subscriptions, Robbins said.
Robbins sees that shift as part of a global trend -- many companies that now sell products will transition to providing services that generate recurring revenue. (See Cisco's Robbins: With IoT & Cloud, Services Beat Products.)
In August, Cisco laid off 5,500 positions, 7% of its workforce, as part of an ongoing shift to recurring, software-based revenue models and the cloud. (See Cisco Throws 5,500 Overboard on Cruise to Richer Waters.)
Robbins identified future growth areas as security, collaboration and Application Centric Infrastructure (ACI), its SDN technology.
Robbins attributed weak demand to "overarching macro uncertainty in the economy" and "political and regulatory environments that are somewhat uncertain in the US and throughout the world."
Robbins said he did not know when to expect service provider demand to pick up. He said service providers haven't paused spending directly related to the election, but they are hesitant because the regulatory environment is in flux. (See Nokia Reserves Judgment on Trump and Blond Buffoon a Worry for Telecom Vendors.)
Non-GAAP net income was $4.1 billion, or $0.61 per share in the first quarter of fiscal 2017, which ended on October 29.
A UBS analyst questioned whether problems with private cloud implementations could harm Cisco. He said experts at a recent panel at one of his company's conferences said that private cloud isn't working at many companies, which are going to the public cloud instead. If the private cloud declines, that could mean trouble for Cisco and other companies reliant on selling on-premises equipment, he said.
But Robbins was upbeat. "Over the next year to two years, a lot of the complexity in building out private infrastructure and private cloud for our customers will be alleviated," he said. The whole industry will "focus on bringing automation and operational relief to customers," he said. "That level of simplicity and those capabilities will improve."
Robbins noted that customers of Cisco's ACI platform are cutting-edge, and therefore representative of hybrid cloud implementers. ACI grew 33% year-over-year to a $3 billion run rate, he said.
In other business areas: Security revenues were up 11% year-over-year, next-generation (NGN) routing was up 6%, while switching was down 7%. Collaboration and data center each deceased 3%, and wireless and service provider video each decreased 2%, Cisco said.
For the second quarter, Cisco expects a 2-4% revenue decline, normalized to exclude the service provider video CPE business, which Cisco sold on November 20, 2015. Non-GAAP earnings per share will be $0.55-0.57, the company said.
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— Mitch Wagner, , Editor, Light Reading Enterprise Cloud