Should the broader vendor community panic along with Cisco?
Cisco Systems Inc. (Nasdaq: CSCO) was not the first network equipment vendor to cast concerns on its current quarter -- Juniper Networks Inc. (NYSE: JNPR), Infinera Corp. (Nasdaq: INFN), and Cyan Inc. , among others, did so as well. But, along with his usual gusto about his company's ability to endure, Cisco Chairman and CEO John Chambers seemed uncharacteristically vexed, downright worried even, this week as he reported Cisco's quarterly results and set a somber tone in his outlook for the current quarter. (See Cisco Set for Sales Slump, Macro-Economic Woes Still Hurting Cisco and Vendors' Q4 Outlooks Spooking Market .)
Chambers cited everything from service provider and enterprise business leader caution to the NSA spying scandal to the federal government shutdown as he attempted to lay out the reasons why Cisco disappointed last quarter and might do so again this quarter.
The biggest red flag in my mind was not the NSA scandal's impact, though this is certainly the excuse getting the most media attention. I donít completely understand why this scandal should affect sales for any vendor that just happens to have equipment in some of the networks that were used for spying. Meanwhile, the federal government shutdown should fade into the past, and not affect Cisco or other vendors in the future.
However, something else Chambers mentioned was more concerning. Cisco reported service provider orders for its fiscal first quarter of 2014 were down 13 percent year-over-year. In part, Chambers blamed slower purchasing as carriers (and I believe he was also referring to enterprises to some degree) spent more time than expected evaluating new products. He was talking primarily about Cisco's new CSR-X and NCS platforms, but his comments donít bode well for the next few months as Cisco ships elements of its brand-spanking-new application-centric infrastructure platform.
It is true that recent months have seen a lot of new platforms in switching, routing, and other segments emerge from many vendors as the market responded to developments and trends around software-defined networking and network functions virtualization. So, it's logical to suggest that purchasing processes -- especially the typically long carrier buying cycles -- are getting a little longer as customers spend more time kicking the tires on a bevy of new options.
This cause of weakness for Cisco could be a developing sector-wide issue. Vendors are going to have to cope with their customers taking some extra time to figure out when, where, and how much to invest in these new platforms. The confusion may only last a few months, though if SDN standards and interoperability issues create more confusion, vendors could be in for a longer bout of customer indecisiveness.
If, however, in the next round of quarterly reports we see other vendors dispute this notion, then it could hint at a bigger problem for Cisco alone. If it's just Cisco's customers who are taking more time to kick the tires on Cisco's new platforms, the king of networking hardware really does have something to fear in the SDN evolution.
ó Dan O'Shea, Managing Editor, Light Reading