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Nov 13, 2019

Cisco sales forecast falls short on slowing global economy


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Cisco Systems Inc. gave a lackluster sales forecast, indicating that companies are postponing hardware purchases amid concerns the China-U.S. trade standoff will continue. Shares fell about 4 per cent in extended trading.

Sales in the fiscal second quarter will decline 3 per cent to 5 per cent from the same period a year earlier, the San Jose, California-based company said Wednesday in a statement. That indicates revenue of about US$11.9 billion, compared with an average of analysts’ estimates of US$12.8 billion, according to data compiled by Bloomberg. Adjusted profit will be 75 cents to 77 cents a share, also falling short of analysts’ projections.

Chief Executive Officer Chuck Robbins is transitioning Cisco into more of a networking software and services company. While that push is delivering results -- helped by a slew of acquisitions -- the company still gets the majority of sales from machines that are the backbone of the internet and corporate networks.

Cisco shares declined to a low of US$45.12 in extended trading after earlier closing at US$48.46 in New York. The stock has gained 12 per cent this year.

“We delivered solid performance in a challenging macro environment,” Robbins said during a conference call with analysts.

“We indicated that we had begun to see some weakness and that weakness continued throughout Q1 and was more broad-based,” the company added in a statement. “Despite some of the pause we’ve seen from our customers, they remain committed to our technology solutions and we are well-positioned for success over the long-term.”

If sales drop as projected, it would be Cisco’s first quarterly year-over-year revenue decline in two years.

Fiscal first-quarter net income fell to US$2.93 billion, or 68 cents a share, from US$3.55 billion, or 77 cents, a year earlier. Revenue gained less than 1 per cent to US$13.2 billion. Excluding certain items, Cisco posted profit of 84 cents a share.

Cisco has said that the biggest drag on its earnings are cable companies that are trying to extend the life of their existing gear rather than buying new equipment. Adding to that slowdown, a big chunk of spending by phone-service providers is on the early deployment of 5G, or fifth generation, cellular networks. That’s mainly for the base station radio towers that Cisco doesn’t sell. Its gear will be needed later when traffic picks up in data centers.

Cisco’s hardware business generated sales of US$7.54 billion in the period ended Oct. 26, a drop of 1 per cent from a year earlier. Applications, its software unit, gained 6 per cent to US$1.5 billion and security revenue jumped 22 per cent to US$815 million.

Cisco is the biggest maker of routers, switches and other gear used to connect computers. The company gets a tiny percentage of sales from China, where it’s been largely locked out of the market. About 60 per cent of revenue comes from the Americas region.