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Routing

Cisco Set for Sales Slump

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

DOShea 11/17/2013 | 10:32:16 PM
Cisco-specific problems More analysis coming in via anaylyts' research notes: Alex Henderson at Needham & Co described many of the problems Cisco reported as "issues specific to Cisco," for example, the fact that Cisco has more emerging market exposure than other vendors, and that its core router sales are weak while other vendors' aren't.
albreznick 11/17/2013 | 6:18:28 PM
Re: Set-top boxes Yeah, I'm a little dubious about that. That explanation may work for a quarter or 2. But I don't think it's going to hold water for much longer than that.  
DOShea 11/17/2013 | 5:12:02 PM
Set-top boxes Re: the set-top revenue, some of the analysts are now saying that was caused by Cisco's own effort to de-emphasize low-margin set-tops, which I guess makes it less surprising, though I wonder how for many quarters it will see a similar effect.
chuckj 11/15/2013 | 8:45:44 AM
Re: DON'T PANIC!! The fed been pumping trillions in the economy to keep it afloat and the bell weather in networking has to depend on some poor third world economy to meet its numbers? It is time to panic.
[email protected] 11/15/2013 | 6:36:16 AM
Juniper says no revise to its forecast Juniper says, in the REuters report linked below, it's not changing its outlook, further suggesting that Cisco's blip is morelocalized than sector-wide...

http://www.reuters.com/article/2013/11/14/juniper-outlook-idUSL2N0IZ2MS20131114
albreznick 11/14/2013 | 5:39:07 PM
STB shipments and revenues I can't believe how much Cisco's STB business suffered in the quarter. That bears further investigation and watching. Was it just a quarterly thing or a Cisco thing?
R Clark 11/14/2013 | 4:28:58 PM
Re: DON'T PANIC!! It's surely a Cisco problem, not a sign that emerging markets are about to go off the cliff. I suspect the NSA factor might be a bit overstated.

In China Cisco has been in the gun for some time because it is seen (rightly or wrongly) as one of the biggest lobbyists against Huawei. That hasn't affected its sales in China over the previous four or five quarters, mainly because Chinese don't have a domestic substitute.

 
DOShea 11/14/2013 | 10:48:40 AM
Re: DON'T PANIC!! "I've never seen this before" is the worst possible thing a CEO can ever say about anything. And I can't believe Chambers said it. This is a guy who, if the Walking Dead showed up at his front door, would probably just say, "I'm certain Cisco will come out of this stronger than ever."

 
quicktime 11/14/2013 | 10:34:46 AM
Re: DON'T PANIC!! From wallsreet Journal:

CEO John Chambers said orders the company expected to land in October never did, and orders for all emerging markets sank 21% – "I've never seen this before," he said. The company also said the NSA revelations were making it tougher to compete in China, where Cisco already faces a formidable domestic rival in Huawei Technologies

 
[email protected] 11/14/2013 | 9:43:49 AM
DON'T PANIC!! I have to say when I saw the fiscal Q2 sales forecast my heart sank, but let's hope the Wall Street analysts are right and that this is a short-lived dip that is Cisco-centric and not a broader reflection of the market.

Something for the new Juniper CEO to talk about... :-)

Juniper Names New CEO

http://www.lightreading.com/carrier-sdn/nfv-(network-functions-virtualization)/juniper-names-new-ceo/d/d-id/706602?
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