Cisco CEO Chuck Robbins is confident that customer demand will return once the COVID-19 crisis is over, after the US giant posted steep declines to its product business in Q3.
For the three-month period ending 25 April, Cisco's revenues contracted by eight per cent to $12bn, while operating income fell by three per cent to $3.4bn.
The revenue declines in Q3 were far steeper than the 1.5 - 3.5 per cent decline Cisco forecasted for the quarter when it published its Q2 results in January, and marks the third consecutive quarter of revenue declines for Cisco.
Cisco's product revenues decreased 12 per cent compared to the same quarter last year to $8.6bn, while service revenues grew by 4.6 per cent to $3.24bn.
Within product revenues, Cisco's Infrastructure Platforms business, which comprises networking switches and routers, fell by 15 per cent year on year to $6.43bn.
Its applications business, which includes videoconferencing products and AppDynamics, was also down year-on-year - by five per cent to $1.36bn. Security was the only segment in its product portfolio to see growth in Q3 at six per cent to $776m.
From a geographic basis, EMEA sales were down seven per cent to $3.14bn, the Americas by eight per cent to $7.11bn and APJC by nine per cent to $1.73bn.
Cisco claims its Infrastructure Platforms business was hit the hardest by supply chain challenges stemming from manufacturing and component constraints brought on by the COVID-19 crisis.
Speaking to investors on an earnings call transcribed by Seeking Alpha, CEO Chuck Robbins said any customer that is anticipating financial difficulties within the next three to six months has already paused any non-critical IT projects.
He said that Cisco was performing ahead of expectations in March as businesses scrambled to build new IT environments, but demand began to slow in April as lockdown measures came into place.
But Robbins went on to assure investors that the pandemic has been a "wake-up call" for many of Cisco's customers, with many now re-prioritising their IT spending and planning to make new investments once the pandemic has passed.
"I've had a lot of customers who are not at the centre of this crisis, who realised during this pandemic that they have a fair amount of technical debt and they have a lot of aged equipment," Robbins said.
"This is a wake-up call and this is going to actually give us air time to talk to our senior leadership team about upgrading and building out a more robust modernised infrastructure."
Robbins also reassured investors that some of Cisco's largest customers, across the public sector, healthcare and higher education, are expected to continue to invest in their IT throughout the COVID-19 pandemic.
"While we cannot predict when it's going to happen, one thing we believe is that the demand for our products and services will be strong when we emerge from this situation," Robbins added.
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