Cisco Systems' (CSCO) July quarter earnings report and order data already provided evidence that weak telecom capital spending was becoming a real problem for the company. The networking giant's latest numbers show that the problem has intensified, just as it has for many peers.
Together with a slowdown in Cisco's very profitable enterprise switching business and pockets of weakness elsewhere, that's going to make for a bumpy ride in the near-term. Even if there's some encouraging progress with growth initiatives and a chance for major offshore cash tax relief.
Cisco reported fiscal first quarter revenue of $12.35 billion (up 1% annually) and adjusted EPS of $0.61 (up 3%), topping consensus analyst estimates of $12.33 billion and $0.59. But it also guided for fiscal Q2 revenue growth (excluding year-ago sales for Cisco's divested set-top unit) of -2% to -4% and adjusted EPS of $0.55 to $0.57, below consensus estimates for 1.9% total revenue growth and EPS of $0.59.
Shares fell 4.3% in after-hours trading Wednesday and were down 5.3% in early morning trading on Thursday to $29.91. Cisco went into earnings just $0.38 below a 52-week high of $32.95, and up 16% on the year.
Jim Cramer and Jack Mohr, who co-manage our Action Alerts PLUS investment club, cut AAP's rating on Cisco to a "Two" from a previous "One" following the earnings report, writing in a note to club members that "Cisco's growth is contingent on far too many factors outside management's control." Click here for a free 14-day trial of Action Alerts PLUS and see why.
Weak demand from carriers was the main culprit for the guidance: Cisco's service provider product orders fell 12% annually in fiscal Q1, a notably steeper decline than Q4's 5%. That resulted in total product orders dropping 2% (compares with 1% growth in Q4), in spite of a 5% increase in enterprise orders and a 1% increase in commercial (SMB) orders. Public sector orders were flat.