Cisco Systems Inc.'s revenues were hurt by a large two-digit decrease in sales to network providers, and the situation is not expected to improve anytime soon.
reported fourth quarter fiscal results somewhat better than expected, with sales of $ 13.4 billion and adjusted earnings of 83 cents per share. The results were weakened by a 21% reduction in the company's sales to service providers, the biggest decline for the just ended financial year and a 2% reduction in corporate companies, the only decline in that industry year-round.
Cisco also provided timely guidance for the next quarter, helping to pull shares down 7.7% in after-hours trading, and CFO Kelly Kramer pointed directly to the challenges in the service provider sector for that forecast.
"In addition to service providers, the rest of the business is up with single digits," Kramer said in an interview with MarketWatch after revenue.
Kramer explained that network service providers are currently focusing on the consumer mode element of their 5G rollout, ie. the radio parts of the mobile phone tower, in the transition to the next generation of mobile phone services.
"They have to build huge infrastructure. They start with the radio part, which we don't even sell. When they start building core networks, it will take up the business. "
Cisco's weak forecast recently emerged out of fear that technology spending would decline, especially for hardware companies. The results also indicate a potential cooling down: Cisco's corporate management decreased by 2%, after increasing by 9% in the third quarter, 1
"We saw some small indications of some macro changes in July that we did not see during the previous quarter," Robbins told analysts.
"We saw some weakness in the UK in terms of business and then, frankly, in the US," Robbins admitted.
Weakness in China contributed to the downturn in the company, Robbins added. Cisco is foreclosed, or not being asked, to bid on contracts with major airlines in China, Kramer said. Cisco reported a 25% reduction in the company's China operations during the quarter, but it represents only about 3% of Cisco's revenue. As far as the impact from customs in China, Cisco has moved some hardware manufacturing to other countries and offsets some of the potential impact from software, which Kramer previously explained to MarketWatch.
Investors have the right to be nervous about technical spending as the China-US trade war continues. Cisco did not kill fears of a macroeconomic slowdown on Wednesday, but pointed to potential help along the way when the big 5G transition turns to equipment.