Cisco's weak guidance sparks fears of downturn

Cisco says revenue will grow between zero and two per cent in Q1

Cisco's weak guidance for Q1 has sparked fears that the tech industry could be facing a downturn, driven by global political issues.

The networking vendor published its Q4 results after markets closed yesterday, with sales for the three-month period ending 27 July climbing six per cent to $13.4bn (£11.1bn).

But CEO Chuck Robbins said that the last month of the quarter "didn't feel like a normal Q4 finish", triggering Q1 revenue growth guidance of between zero and two per cent.

Cisco said that in Q4 sales in China tanked 25 per cent, and enterprise revenue across the business declined two per cent - which was of particular concern for analysts on an earnings call (transcribed by Seeking Alpha).

Robbins said: "[In] the enterprise business we saw weakness in China, which contributed to it. We saw some weakness in the UK in enterprise.

"Candidly in the US, as much as I don't want to use compares for an excuse, we had two major software deals a year ago that were tough to compare against.

"The rest of the business and everything that we see is still very positive and we feel good about where we are."

Cisco's numbers and outlook spooked investors, with the vendor's share price falling almost 10 per cent in after-hours trading, to its lowest point since February.

The vendor previously seemed to have avoided any negative impact from external factors such as the US-China trade war and Brexit, posting strong Q2 and Q3 numbers.

Three months ago Cisco said it had moved a large proportion of its manufacturing away from China to minimise the impact of Trump's tariffs, but Robbins said on the latest earnings call that its business with Chinese service providers and telcos is falling at a rate.

Cisco's China business accounts for around three per cent of its total revenue, but Robbins said a decline is enough to have an impact on the wider business in the short term - adding that he does not see it as a long-term concern.

He also said that Cisco is "being uninvited to bid" on contracts with Chinese state-owned enterprises.

Cisco's service provider business in general endured a disappointing Q4, with sales down 21 per cent.

Robbins said there "is certainly pressure in the business model across all different types of service providers", claiming that these businesses are largely focusing on their consumer 5G business, with Cisco not likely to profit from this until they turn their attention to more robust enterprise 5G networks.

"It's a bit unclear when that will take place," he said.

"I'd say we're not modelling and don't anticipate any significant improvement in this business in the very near term. We're just going to have to wait and see.

"It has been a tough business for us for years and it now obviously represents a much smaller percentage of our business than it did five years ago. But it clearly was a major point of weakness for us in the last quarter."