Wall Street has given Cisco a kicking after its first-quarter results laid bare the severity of the challenges it faces in China and other emerging markets.
For the three months to 26 October, the networking titan grew global sales two per cent to almost $12.1bn (£7.5bn), although net profit declined 4.6 per cent to just under $2bn. The vendor faced a number of obstacles during the quarter, including the US government shutdown, which Cisco claims put a $50m dent in its Q1 top line.
But even bigger tests lay outside its homeland, as the vendor's business in emerging markets slumped 12 per cent annually. Its top five countries in the segment endured massive declines, with Russian sales sinking 30 per cent, Brazilian revenue down 21 per cent and India, China and Mexico each posting an 18 per cent rollback.
And Cisco is expecting more tough times ahead, as it warned that it expects second-quarter sales to show an annual decline of between eight and 10 per cent. In a conference call to discuss the second-quarter results, transcribed by Seeking Alpha, chief executive John Chambers admitted that concerns sparked by the NSA spying revelations had hurt its business in China.
"It is [having] an impact in China – I think we're all aware of that. I think its impact on the total emerging country business, however, is fairly nominal. I do think we are seeing a slowdown in these emerging markets both in the decision making and their economies, but I do not think [the NSA revelations are] a major factor across all of emerging. I do think it is a factor, however, in China."
Despite the top-line growth of Q1, Wall Street had been expecting revenue to come about $250m higher. The muted top-line growth, coupled with the gloomy outlook for the coming quarter, saw Cisco's share price slump about 10 per cent in after-hours trading.
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