Cisco's sobering forecast overshadows 3Q earnings

SAN FRANCISCO (AP) — Cisco raised the specter late Wednesday of a jarring slowdown in technology spending, alarming investors already fretting about the economy's fragile condition.

The red flag hoisted by the world's largest maker of computer-networking equipment overshadowed a solid showing in Cisco's most recent quarter.

Investors instead fixated on a sobering forecast for the current quarter from Cisco Systems Inc. CEO John Chambers. He attributed the grim outlook to skittish customers who are waiting longer to close deals and spending less money because of growing concerns about the economy, particularly in Europe and India.

"We are still in an uncertain environment economically," Chambers told analysts in a conference call.

The cautionary remarks sparked worries that Cisco might be about to fall into a slump similar to the one that it just pulled out of late last year after trimming about $1 billion in its annual expenses.

The fears caused Cisco's shares to plunge $1.58, or more than 8 percent, to $17.20 in extended trading Wednesday. The sell-off doesn't bode well for the Dow Jones industrial average Thursday because Cisco is one of the 30 stocks in the closely watched market barometer.

As a maker of big-ticket technology equipment with an international reach, Cisco is considered to be a good gauge of the swings in the global economy.

Cisco underscored its concerns about the economy by predicting its revenue for the current quarter, which runs May to July, will increase by just 2 percent to 5 percent from the same time last year. The average estimate among analysts surveyed by FactSet had called for a 7 percent increase in revenue.

The company, which is based in San Jose, Calif., expects its adjusted earnings for the period to range from 44 cents to 46 cents per share. Analysts had predicted adjusted earnings of 49 cents per share.

"This is not encouraging. It looks the recovery we had going may be abating," said Sterne Agee analyst Shaw Wu. He said investors should be able to get a better handle on corporate technology spending trends later this month when two other industry bellwethers, Dell Inc. and Hewlett-Packard Co., release their quarterly earnings. Dell's numbers are due out May 22, followed by HP's breakdown on the next day.

The prospect of anemic revenue growth covers Cisco's fiscal fourth quarter — typically the company's busiest period. Although management didn't look beyond the current quarter, investors are likely wondering whether the business climate for Cisco will be even worse in the late summer and early fall.

But Wu said he thinks the autumn also could turn out to be better than expected if Cisco gets a lift from increased sales of equipment for planned upgrades to wireless networks for smartphones and tablet computers.

Chambers sought to reassure analysts. "We will muddle through this with a little bit of bumps on the road," he said.

Cisco earned $2.2 billion, or 40 cents per share, during its fiscal third quarter, which ended April 28. That compared with net income of $1.8 billion, or 33 cents per share, at the same time last year.

If not for certain accounting items unrelated to its ongoing business, Cisco would have earned 48 cents per share. On that basis, Cisco's earnings were a penny above the average estimate among analysts polled by FactSet.

Revenue rose 7 percent from last year to $11.6 billion, matching analyst projections.

Cisco's showing contrasted with revenue downturns in the most recent quarters at two of its major rivals, Juniper Networks Inc. and Alcatel-Lucent. The earnings growth also provided the latest sign that Cisco's recently completed overhaul is paying off. In that reorganization, Chambers laid off workers and dumped operations that he believed were distracting the company from its main business of selling computer-networking equipment.

But, Chambers stressed Wednesday, Cisco may now be facing economic challenges beyond its control.

Comments

Use the comment form below to begin a discussion about this content.

Please review our Policies and Procedures before registering or commenting

News Tribune - comments