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Cisco Cuts Long-Term Revenue, Earnings Target

Thursday, 12 December 2013 01:19 PM

Cisco Systems Inc. on Thursday cut its longer-term earnings and revenue growth targets due to problems in emerging markets, conservative customer spending and stalling growth in its core business of network equipment, the latest in a drumbeat of bleak developments at the Silicon Valley company.

Its shares were down 2 percent — a seven-month low — after it cut its three- to five-year revenue growth target to a range of 3 to 6 percent at its analysts' meeting. Its previous range was 5 to 7 percent.

Cisco, which issued a dramatic warning on Nov. 13 that revenue would decline in the current quarter and coming quarters, also reduced its target for earnings-per-share growth to a range of 5 to 7 percent for the same period from its previous target of 7 to 9 percent.

Chief Financial Officer Frank Calderoni said revenue in Cisco's core network equipment business would be flat to up 1 percent in the same time frame. He promised higher growth in areas such as software, services and security products.

In response to analyst worries about how much of Cisco's troubles were specific to the company as opposed to industry-wide, Chief Executive John Chambers told investors that Cisco tends to suffer from macro issues ahead of rivals because of the breadth of its business.

"We are the canary in the coal mine," Chambers said, noting that the company often sees problems two to three quarters ahead of peers.

Chambers said he was beginning to see the U.S. market recover but cited challenges in emerging-market economies such as Russia and Brazil.

While emerging markets were "extremely challenged" right now, Chambers said he expects Cisco to grow in those regions, when they recover, by 6 to 10 percent.

For the U.S. market, Chambers cited strong growth prospects in the enterprise market, as its sales pipeline for big deals of between $1 million to $5 million in that segment is up 20 percent or more. Enterprise customers account for about 23 percent of Cisco's overall revenue.

Cisco stunned the market last month by warning that revenue would fall as much as 10 percent this quarter and could keep declining for several quarters. The company blamed factors from emerging-economy weakness and political backlash in China to company-specific problems, such as market-share losses in network equipment and declining sales of set-top boxes.

Aside from emerging markets, Cisco's biggest problem in the quarter was a 13 percent decline in sales to service providers, which represent about 31 percent of overall revenue.

Chambers said the drop in demand from service providers included a 6 percent decline in sales of set-top boxes, a 2 percent decline relating to its launch of new products and a 2 percent decline due to a loss of market-share in equipment used at the edge of operator networks.

Some investors were hoping Cisco would provide a detailed plan on Thursday for the future of its set-top box business where it has decided to forego some sales of less-profitable products. Some people are hoping it exits that market.

But Rob Lloyd, president of development and sales, said the company is "not getting out of set-top boxes."

The executive said that while the business is putting pressure on revenue, the company wants to keep those products so they can provide them to bigger customers as it tries to switch focus to other products for video service providers.

Cisco shares were down 1.8 percent at $20.51 in early afternoon on the Nasdaq, off an earlier low at $20.26.

The shares had closed at $24 the day before Cisco's Nov. 13 revenue warning.

© 2019 Thomson/Reuters. All rights reserved.

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Cisco Systems Inc. on Thursday cut its longer-term earnings and revenue growth targets due to problems in emerging markets, conservative customer spending and stalling growth in its core business of network equipment.
Thursday, 12 December 2013 01:19 PM
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