Cisco profit drops for second consecutive quarter

Cisco Systems Inc. has often been seen as a bellweather for the IT industry because it is so dominant in its field, which covers networking, servers and security.

So Wednesday’s financial results, in which saw profits drop for the second quarter in a row despite reports the U.S. economy is strengthening, has given pause to some who wonder what the trend is.

In a statement accompanying the results, CEO and chairman John Chambers said “our financials are strong and our strategy is solid” as he reported second quarter net income of US$1.4 billion on $11.2 billion of income.

“The major market transitions are networking-centric and as the Internet of Everything becomes more important to business, cities and countries, Cisco is uniquely positioned to help our customers solve their biggest business problems.”

But in a conference call with financial analysts he said the company will return to growth over “the next several quarters.”

“Multiple transitions are occurring at the same time, requiring Cisco to transform on multiple fronts faster than we’ve done before,” he was quoted by ComputerWorld U.S. as telling the analysts.

Consider these numbers: Revenue for the first six months of fiscal 2014 was US$23.2 billion, compared with $24.0 billion for the first six months of fiscal 2013. Net income for the first six months of fiscal 2014 was US$3.4 billion compared with $5.2 billion for the first six months of fiscal 2013.

Cisco [Nasdaq: CSCO] is sitting on US$47 billion in cash and equivalents, but that’s not the question – which is, what’s the state of the global economy?

Chambers told analysts that orders were up during the quarter in the U.S. but down about 10 per cent in Brazil, Russia, India, China and Mexico. Europe is recovering. Worldwide, orders from service providers were down 12 per cent in the quarter.

Sales of data centre and security products, though were up compared to the same period a year ago.

Industry analyst Zeus Kerravala sees no worrying trend.  The company is in transition, he said in an interview:  The collaboration industry is moving to cloud, and in switching Cisco might have created its own “air pocket” by announcing the Nexus 9000 core switch that won’t be available until the next quarter.

But, he noted, U.S. orders are up, which makes him believe the company’s next quarter will be okay .

“This such a big company and it deals in so many markets and so many geographies that it would be almost impossbile for them to fire on all cylinders all the time,” he said. So what he called “lumpiness” in the results of various Cisco divisions and countries is almost become the norm.

“Computing is changing,” he observed, with organizations still wrestling with strategies on cloud computing, mobility and software defined networking. But many of these are network-centric issues, which requires patience. Cisco is by far the largest networking vendor in the world, and it stands to gain the most, he said.


Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@]

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