Cisco Results Hurt by Weaker Market for Networking Devices
February 15 2017 - 5:00PM
Dow Jones News
By Rachael King
Even as Cisco Systems Inc. makes some gains in new strategic
areas such as security, the company continues to battle weak
customer spending in its core market for networking gear.
The Silicon Valley company said Wednesday second-quarter revenue
fell 2.9% due to weak spending among service providers for
switching systems that help move network traffic. The company has
now posted revenue declines for five straight quarters.
Shares of Cisco fell 1% after hours.
Cisco said its profit for the quarter ended Jan. 28 fell 25% to
$2.35 billion, or 47 cents a share. Excluding charges, adjusted
earnings per share were 57 cents, compared with an analysts'
consensus estimate of 56 cents a share, according to a Thomson
Reuters poll of analysts.
The San Jose, Calif., company's results often reflect changes in
technology spending patterns ahead of peers.
Cisco's switching revenue fell 5%, and routing revenue dropped
10%. Meanwhile, wireless revenue rose 3%, collaboration revenue
climbed 4% and security revenue jumped 14%.
Cisco Chief Executive Chuck Robbins said in prepared remarks
that he was pleased with "continued customer momentum as we help
them drive security, automation and intelligence across the network
and into the cloud."
Mr. Robbins, who became CEO in 2015, is trying to chart a future
for Cisco in software for security and collaboration as the
company's main hardware business has come under pressure from
competitors over the past few years.
To that end, Cisco said in January it would purchase software
firm AppDynamics Inc. for $3.7 billion. That deal, which help
bolster Cisco's software offerings for large business customers, is
expected to close during the third quarter.
Even as the company continues to see healthy growth in security
software revenue, it is facing increasing competition in its core
switching business. In particular some large customers are turning
to competitors such as Arista Networks Inc. or inexpensive
commodity-style switching systems from vendors such as Taiwan's
Quanta Computer Inc.
In particular, the highest-growth segment in the switching
market is the nearly $8 billion that cloud providers and telecom
service providers spend annually on network switching gear, said
Rohit Mehra, an analyst who leads IDC's networking practice.
In many cases, larger cloud providers and telecom service
providers are looking for hardware that can be easily customized,
automated and managed remotely, Mr. Mehra said. "This is where
Cisco is having challenges competing," he said, adding that Cisco
has made progress in adapting its products.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
February 15, 2017 16:45 ET (21:45 GMT)
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