Cisco's Bleak Q2 Outlook Sends Shares Plummeting


Cisco Wednesday warned investors that it expects revenue for its current fiscal quarter to slide between eight and 10 percent due to continued weakness within emerging markets and its service provider business.

"As we have always done, we commit to you to being transparent, and letting you, our shareholders, see the challenges and opportunities as we see them," said Cisco CEO John Chambers, speaking to investors during a conference call Wednesday. "We remain very confident in our long-term strategy and are committed to managing this business to make sure we continue to drive greater long-term value for our employees, customers, partners and shareholders."

Cisco shares plummeted more than 10 percent in after-hours trading Wednesday.

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"I know from [our] meetings that you understand our strategy and where we can take this company," Chambers told shareholders on the call. "I also know that ... these transitions can create unwelcomed quarter-to-quarter volatility, and can be frustrating for longtime shareholders."

Cisco also said Wednesday that it plans to buy back an additional $15 billion in shares as part of its broader stock buyback program. The Cisco board had previously authorized up to $82 billion in stock repurchases.

Cisco attributed its bleak second-quarter outlook to continued sluggishness within its emerging markets and service provider businesses. In its first fiscal quarter, the results of which were also given Wednesday, Cisco said its emerging markets revenue was down 12 percent year-over-year, with the total revenue from its top-five emerging market countries -- Brazil, Mexico, India, China and Russia -- declining an even greater 21 percent.

Chambers said he expects to see Cisco's emerging markets business return to growth in a few quarters, "with all the appropriate caveats."

Meanwhile, Cisco's service provider business in the first quarter declined 13 percent year-over-year, a drop Cisco attributed to its struggling set-top box business, which saw revenue drop 20 percent year-over-year.

In addition, Chambers said Cisco's new service provider platforms, such as NCS, are seeing "slower growth than anticipated as customers continue to invest in their existing platforms and adopt these new platforms."

For its first fiscal quarter overall, Cisco reported a revenue of $12.1 billion, up 1.8 percent from $11.9 billion compared to the year-ago quarter. Cisco's net income for the first quarter, ended Oct. 26, was $2 billion, down 4.6 percent from $2.1 billion in the year-ago quarter.

Cisco's enterprise business in the first quarter was up 2 percent year-over-year. The company said its U.S. enterprise business, specifically, saw growth in the "high single digits." Cisco's commercial business grew 1 percent year-over-year, while its public sector business declined 1 percent year-over-year.

In terms of product category, Cisco said its data center business particularly shone, with revenue growing 44 percent year-over-year to $601 million. Cisco said the growth in its data center business was fueled largely by its Unified Computing System converged infrastructure offering.

Other product category results for Cisco's first fiscal quarter included its switching business growing 3 percent; its wireless business growing 8 percent; its NGN routing business declining 1 percent; its collaboration business growing 1 percent; and its services business growing 4 percent.

Cisco also said revenue for its security business was up 8 percent year-over-year, as it's "already seeing the benefits" of its recent Sourcefire acquisition.

Cisco's first-quarter earnings release come one week after the San Jose-based company unveiled its long-awaited software-defined networking strategy and new application-centric infrastructure (ACI). Chambers said he was "very pleased" with the market response so far to ACI, which is based on technology from Cisco's SDN-focused spin-in Insieme Networks.

"When we look back five years from now, I think we will see ACI as a pivotal point in redesigning IT," Chambers said.

PUBLISHED NOV. 13, 2013