Nothing on the call sounded the klaxons the way Cisco's second quarter did. But buried in the results, could there be cause for worry?
During the Q&A part of yesterday's earnings call, some analysts picked through the numbers Cisco gave for order growth, noting that acquisitions and an unexpected surge from Japan helped prop up some of the year-over-year comparisons. A question from Ehud Gelblum of JP.MorganChase sums it up:
In the main growth areas we've been looking at, emerging markets have been growing really nicely for a bunch of quarters and then sort of decelerating. They've now gone from 24 percent on the order side to 10 percent this quarter. Advanced technologies... that was 17 percent growth, but there were some acquisitions in there. I calculate it was about 8 percent when you take out the Ironport and WebEx acquisitions. And then service provider, which is something that we all think is pretty strong -- and Japan is in there -- the orders grew 6 percent. So, we're looking at numbers that all seem to be pretty low... How do we get back into the 12 to 17 percent range?
As usual, CEO John Chambers managed to find no bad news in the question:
If you look in terms of the growth on the networks, the video growth, how service providers are going to evolve, etc., you will have to spend in those areas. So, I think there may be cycles where they spend heavy or a little bit slower. Just using enterprise as an example... The two areas that led us into the slowdown, which were the financial services and the manufacturing sector, actually had their best growth, in mid-teens, and now you're starting to see the areas such as transportation and hospitality -- it's no surprise -- slow a little bit more. So, I just think you're going through normal cycles.
Chambers added this gem, which sums up why investors didn't seem too unhappy with Cisco in after-hours trading:
When you can grow at 10 percent when the largest country that represents about 47 percent of your business grew mid-single digits, that's not a bad quarter.
Gelblum was far from the only one picking apart the numbers, though. Mark Sue of RBC Capital Markets mentioned how "the weakness seems to be spilling over from the enterprise into the service provider and also, now, commercial."
But Chambers still contends the weakness in U.S. markets could be short lived:
Our views have not changed dramatically since early February when we shared with you [that] we thought the U.S. would see some bumps here that would last two to three quarters, the most likely scenario, and by the end of the calendar year, [the] most likely scenario was that it'd be turning back up.
On a separate note, some parts of Cisco's business showed so much growth last summer that this year is going to look awful by comparison. Chambers referred to Scientific Atlanta at least twice, because last year's seven-oh-seven run-up created numbers that the division can't possibly match. "Difficult comparables," was how he put it. In that sense, even if the economy starts improving, the fun isn't over yet.
— Craig Matsumoto, West Coast Editor, Light Reading