Cisco Cuts Sales Forecast as Emerging Market Sales Stall

Cisco Systems Inc., the biggest maker of computer-networking equipment, reduced its revenue forecast for the next three to five years amid weaker demand from emerging markets and telecommunications-service providers.

The company expects average sales growth of 3 percent to 6 percent in the coming years, Chief Financial Officer Frank Calderoni said today at a meeting with analysts in New York. That’s lower than an earlier projection for sales to rise 5 percent to 7 percent, which the company repeated last month.

Cisco is facing reduced spending by phone companies and corporations, as well as slower economic expansion in Europe, Asia and emerging countries. Industry shifts -- such as stronger demand for inexpensive software tools that perform the functions of advanced networking gear -- are also threatening sales growth. The changes have complicated Chief Executive Officer John Chambers’s plans to leave his successor a company on the upswing when he retires, possibly as soon as next year.

The new forecast is a “more realistic” financial model for Cisco, considering economic pressures and rapid changes in the technology industry, said Brian Marshall, an analyst at ISI Group. Marshall has the equivalent of a hold rating on Cisco.

Analysts on average had estimated revenue would rise 4 percent in fiscal 2015 and 8 percent in fiscal 2016, according to data compiled by Bloomberg.

Cisco shares fell 1.8 percent to $20.51 at the close in New York, the lowest price since May.

Quarterly Revenue

In November, the San Jose, California-based company forecast its first quarterly sales decline in four years, adding to evidence that Chambers’s turnaround plan is sputtering. Revenue in the current period, which ends in January, will fall 8 percent to 10 percent from a year earlier, Cisco said.

Cisco is a “canary in the coal mine” when it comes to experiencing market trends early, Chambers said today. The company remains “extremely committed” to emerging markets, and spending by large businesses in the U.S. “feels good,” he said. Chambers has been CEO since 1995.

Cisco last lowered its annual sales growth forecasts in 2011, when the company had been projecting growth of 12 percent to 17 percent. Weak demand and price pressure caused Chambers to cut jobs and exit businesses. Cisco has eliminated 12,300 positions in about the past two years, including 4,000 jobs, or 5 percent of the workforce, announced in August.

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