Cisco sent alarm bells ringing around the networking hardware sector late Wednesday as it provided a grim outlook for the current quarter.
But the IP networking giant's woes might have more to do with its internal challenges than external forces, even though there are other vendors expecting tough trading conditions in the final months of this year. (See Vendors' Q4 Outlooks Spooking Market .)
Cisco Systems Inc. reported revenues for its fiscal first quarter (ending October 26) of $12.1 billion, a slight increase compared with a year ago but lower than expected. In addition, its service provider order book showed a 13 percent decline compared with a year ago, due to a decline in set-top box orders as the company exits low-margin markets and makes the transition in its router portfolio to the new Network Convergence System (NCS) announced recently. That was bad enough. (See Macro-Economic Woes Still Hurting Cisco and Cisco Unveils Carrier SDN Network Fabric.)
The bombshell was Cisco's financial outlook for its fiscal second quarter, which runs until late January 2014. Cisco announced that it doesn't expect orders to pick up and that it expects to report a year-on-year decline in revenues of up to 10 percent, with weak orders from emerging markets a major contributor to that expected dip. Last year's fiscal second quarter revenues came in at $12.1 billion, so the current quarter could see sales drop as low as $10.9 billion if the worst of Cisco's fears play out.
That news, which sent Cisco's share price down by more than 11 percent to $21.30 in pre-market trading Thursday morning, will have every networking technology company on edge. But, for now at least, it isn't being seen as a sector-wide warning.
"Cisco results were very disappointing, but we think they were more Cisco specific than a broad indicator for technology companies," noted Needham & Co. analyst Alex Henderson. "We strongly believe Cisco is not a bell weather [sic] indicator for other companies," he stated in a research note, pointing out that the company was suffering from a number of factors, including increasing competition in the router market, "the Chinese retaliation for US Government concerns with Huawei, and a much larger than average exposure to weakness in emerging markets."
Simon Leopold at Raymond James Financial Inc. (NYSE: RJF) agrees, noting that the "shockingly poor" outlook was affected by factors such as "exchange rates, political issues and product transitions." He adds in his research note that Cisco has maintained its long-term targets: "We like Cisco's vision focused on an evolution towards more software centric networking."
Cisco has been articulating that vision recently, providing its own take on how software-defined networking (SDN) will play into commercial networks. (See Cisco Asks the Killer SDN Question, Cisco's ACI Gets Physical With SDN, and Cisco Unveils Application-Centric Infrastructure.)
— Ray Le Maistre, Editor-in-Chief, Light Reading