Cisco share price dips 10% on Q1 results

Cisco’s share price (NASDAQ:CSCO) plunged by more than ten percent in afterhours trading on Wednesday after the network-equipment giant reported first-quarter revenue below expectations and forecast a decline in sales in the current quarter.

First-quarter revenue came in at $12.1 billion (₤7.5 billion), below the $12.3 billion (₤7.67 billion) forecast by analysts. Net income for the three month period ended October 26 fell to $2 billion (₤1.25 billion), or $0.37 a share, from $2.09 billion (₤1.3 billion), or $0.39, a year earlier.

“While our revenue growth was below our expectation, our financials are strong, our strategy is strong and our innovation engine is executing extremely well. We remain confident in our long-term goal to be the #1 IT company in the world and help our customers solve their biggest business problems,”

Commented chairman and chief executive John Chambers.

Cisco said that it would boost its share buyback programme by $15 billion (₤9.36 billion) but the announcement failed to alleviate worries surrounding the Silicon Valley company. It forecast that its second-quarter revenue would decline by eight percent to 10 percent to $10.9-$11.1 billion (₤6.8-₤6.9 billion), compared with analysts’ average projection of $12.6 billion (₤7.86 billion). Profit excluding some items will be $0.45 to $0.47 a share, below the $0.52 average forecast by analysts.

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Chief financial officer Frank Calderone said that the projected revenue decline was partially due to the recent revelations about internet surveillance by the US National Security Agency, which prompted “a level of uncertainty or concern” among customers internationally.

In the last quarter new orders dropped 12 percent in the developing world, with Brazil down 25 percent and Russia off 30 percent.

CEO Chambers admitted that Cisco was facing weaker sales in its core switching and routing markets as the company went through key product transitions. “There is no doubt the pace of change we all see and feel is accelerating,” Chambers said.

“This is the new market reality.” The chief executive assured investors that Cisco would have a strong line-up of new products on sale by the middle of next year.

Gross margin in the first quarter was 63 percent, compared with analysts’ prediction for 61.9 percent and the company’s expectations of 61-62 percent.

“This is not the quarter that’s going to light a fire under the stock,” Keith Goddard, president of Capital Advisors, which owns 405,000 Cisco shares, said as quoted by Bloomberg. “We’ll hold the stock, but it’s a low-quality quarter.”

Cisco is seen by investors as a strong indicator of the general health of the tech industry because of its broad customer base. “I’m floored by the guidance,” said Northland Capital Markets analyst Catharine Trebnick, adding that Cisco seemed to be suffering from fierce competition from lower priced rivals as well as broader economic issues.

As of Wednesday, November 13, buy Cisco shares at $21.54.
As of Wednesday, November 13, sell Cisco shares at $21.50.

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