Cisco sales outlook may disappoint some Wall Street analysts

Bloomberg NewsFebruary 12, 2014 

Cisco Systems issued a sales outlook for the fiscal third quarter that may miss some analysts’ estimates amid weakness in emerging markets and a slump in demand from telecommunications-service providers.

Revenue will decline 6 percent to 8 percent in the current period ending in April, the San Jose, California-based company said on a conference call Wednesday. That indicates sales of $11.2 billion to $11.5 billion, while analysts are projecting $11.3 billion on average, according to data compiled by Bloomberg.

Growth at the world’s biggest maker of network routers and switches is being hurt by a slowdown in sales outside the U.S. and increased competition from Huawei Technologies, Juniper Networks and Hewlett-Packard. In addition, Google and other Internet companies are developing their own in-house networking switches specially tailored to their needs, reducing demand for Cisco products.

“There’s a concern that emerging markets aren’t going to come back, or that their position in service providers will continue to be under pressure,” said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.

The shares fell as much as 5.1 percent to $21.69 in extended trading. Earlier, the stock advanced less than 1 percent to close at $22.85 on Wednesday, leaving it up 9 percent this year.

Net income fell 55 percent to $1.43 billion, or 27 cents a share, compared with analysts’ average projection for 36 cents.

Cisco is facing a long-term slowdown amid declining demand in emerging markets and from telecommunications-service providers, which caused the company to reduce its revenue outlook in December. The company forecast average sales growth of 3 percent to 6 percent in the next three to five years, down from an earlier projection for a 5 percent to 7 percent rise.

The company is facing pressure on several fronts, complicating efforts by Chief Executive Officer John Chambers to leave the company on an upswing when he retires, possibly as soon as this year. Cisco said in August that it was cutting 4,000 jobs, or 5 percent of its workforce, amid weaker sales in Japan, China and Europe and competition from Huawei, Juniper Networks and Hewlett-Packard.

The cuts brought to 12,300 the number of jobs Cisco has eliminated over the past two years as it has exited consumer businesses while focusing on corporate software and technology services. Cisco’s campus in Research Triangle Park houses more than 5,000 employees and contractors.

Profit excluding some items was 47 cents a share, and revenue was $11.2 billion in the fiscal second quarter through Jan. 25, Cisco said in a statement Wednesday. Analysts had projected profit of 46 cents and $11 billion in sales.

Chambers has identified the so-called Internet of Everything – referring to the Internet connections being added to everything from cars to refrigerators to garbage cans – as Cisco’s next opportunity. At the International Consumer Electronics Show in January, Chambers presented his vision of a world where people’s preferences follow them digitally from Internet-connected objects in their homes and transit, at hotels and airports, and at work.

Cisco said earlier this month that it anticipates 4.9 billion mobile users worldwide by 2018, up from 4.1 billion in 2013, and that 69 percent of all mobile data traffic will be video. The trend is helping to make up for weakness in sales outside of the U.S. and greater competition.

Profit excluding some items will be 47 cents to 49 cents a share in the current third fiscal quarter, Cisco said. That compares with analysts’ average prediction for 48 cents.

“They’ve done pretty well defending themselves against traditional competitors,” Noland said.

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