Cisco Systems Inc. (CSCO), the world’s largest maker of computer-networking equipment, gave quarterly profit and sales forecasts that missed analysts’ estimates on sluggish emerging-market demand and weak corporate spending.
Profit excluding some items will be 45 cents to 47 cents a share in the period ending in January, the San Jose, California-based company said on a conference call today. Sales will decline 8 percent to 10 percent from a year earlier, indicating revenue of $10.9 billion to $11.1 billion. That compares with analysts’ average projection for profit of 52 cents on sales of $12.6 billion, according to data compiled by Bloomberg.
Chief Executive Officer John Chambers has cut prices to bolster sales of switches and routers, seeking to fend off competition from Huawei Technologies Co., Juniper Networks Inc. (JNPR) and Hewlett-Packard Co. (HPQ) Sales in developing regions were less than anticipated, and there was a “lack of confidence among business leaders” because of the outlook for the economy, as well as the shutdown of the U.S. government in October, Chambers said on the call.
“That’s a wide miss,” said Mark McKechnie, an analyst at Evercore Partners LLC in New York who has the equivalent of a hold rating on the stock. “That’s going to bring up questions about the health of end-markets.”
Cisco dropped as much as 11 percent in extended trading. The shares advanced 1.1 percent to $24 at the close in New York, leaving them up 22 percent this year.
Cisco’s board also authorized $15 billion in additional stock buybacks.
First-quarter revenue was $12.1 billion, Cisco said in a statement. That compares with analysts’ average projection for sales of $12.3 billion, according to estimates compiled by Bloomberg. Profit excluding some items was 53 cents a share, compared with analysts’ average projection for 51 cents.
“This is not the quarter that’s going to light a fire under the stock,” said Keith Goddard, president of Capital Advisors Inc. in Tulsa, Oklahoma, which owns 405,000 Cisco shares. “We’ll hold the stock, but it’s a low-quality quarter.”
Net income for the first quarter, which ended Oct. 26, fell to $2 billion, or 37 cents a share, from $2.09 billion, or 39 cents, a year earlier. Gross margin was 63 percent for the period, compared with analysts’ prediction for 61.9 percent. The company had forecast 61 percent to 62 percent.
Cisco’s biggest challenge is from Asian hardware manufacturers building basic routers and switches for companies such as Facebook Inc. and Google Inc., which use software to boost the speed, security and efficiency of their networks. At the same time, Cisco is seeking to generate sales of its own equipment featuring advanced tools, competing with Palo Alto Networks Inc. (PANW), Arista Networks Inc. and other rivals.
Chambers says that most customers will continue to need well-tested systems that combine its hardware and software to keep up with skyrocketing traffic as billions of tablets, smartphones and other devices come onto the network.
Chambers, facing a sputtering turnaround effort, in August said Cisco would eliminate 4,000 positions, or 5 percent of the workforce. Including those cuts, Cisco will have eliminated 12,300 in the past two years as it has exited consumer businesses while focusing on corporate software and technology services.
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