Cisco Warns of Conservative IT Spending

Cisco grow revenues but the outlook for more of the same will be challenging as macroeconomic concerns take hold.

By Sean Michael Kerner | Posted May 10, 2012
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<p>Cisco reported third quarter fiscal 2012 earnings late Wednesday that were in line with expectations. Expectations for the future, however, aren't overly enthusiastic as customer conservatism begins to set in and macroeconomic concerns are slowing the sales cycle.

<p>

<h2>Revenue up ... for now</h2>

<p>For the quarter, Cisco reported total revenue of $11.6 billion, up seven percent year-over-year. Net income for the third quarter was $2.2 billion as compared to $1.8 billion in the third quarter of fiscal year 2011, an increase of 20 percent year-over-year.

<p>Moving forward Cisco provided fourth quarter fiscal 2012 guidance for revenue growth to be in the range of two to five percent year-over-year.

<p>"We are still in an uncertain environment economically and in global perspective," Cisco CEO, John Chambers, said during his company's earning call.

<p>Europe and the global economy, public sector, India and conservative IT spending are all dragging on sales."Each of these areas has proven to be a challenge as we anticipated, and several, such as Europe and customer conservatism, have gotten worse," Chambers said.

<p>Looking at market share growth specifically,  Cisco's service provider business grew by five percent while enterprise was down one percent.

<p>"Cisco's architectural approach has differentiated us within the service providers and allowed us to take wallet share on a global basis, especially when you consider some of our peers like Juniper where their revenues declined in the most recent reported quarter," Chambers said.

<p>Both <A HREF="http://www.enterprisenetworkingplanet.com/nethub/junipers-revenue-declines-in-q1.html">Juniper</A> and <A HREF="http://www.enterprisenetworkingplanet.com/nethub/alcatel-lucent-still-struggling-to-turn-profit.html">Alcatel-Lucent/A> have recently reported earnings showing slowing growth, as well.

<p>"As you have seen in our enterprise order growth and the trends over time, we are seeing a hesitant spending environment," Chambers warned. "At this time, we are not seeing a significant downturn in the environment nor are we seeing new challenges in our own business. We are seeing larger, longer sales cycles, more sign-off and smaller deal size. Again, what is all focused in terms of a more cautious environment and uncertainty from a CEO perspective."

<h2>More bandwidth in demand</h2>

<p>One thing that is growing at a rapid rate, regardless of the economic environment is demand for more bandwidth in networks. The demand is reflected in the transition from 1 gigabits per second (Gbps) to 10 Gbps  as the dominant speed for Ethernet in enterprise data centers. Chambers noted the 10G Nexus switch port orders grew by 90 percent on a year-over-year basis.

 <p>During the earnings call, Chambers was also asked about how he specifically plans on dealing with competition from China based networking vendor Huawei.

<p>"Every year that I've been here, there's either been a key large competitor, a Dell, an IBM, a Microsoft, at times even an Intel, that was going to come at us and unseat us in an area, and there are always product transitions every year that people get concerned about," Chambers said. "And, for 20 years, we've come out of it stronger ... in every one of those key areas. So that's not a guarantee of how it will turn out in the future, but it does mean we react very, very effectively."

<P><em>Sean Michael Kerner is a senior editor at <a

href="http://www.internetnews.com/">InternetNews.com</a>, the news

service of the IT Business Edge Network,  the

network for technology professionals Follow him on Twitter <A HREF=http://www.twitter.com/techjournalist>@TechJournalist</a>.</em>

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