Cisco CEO remains upbeat despite double digit drop in product revenues in Q1
Chuck Robbins says he ‘isn’t too concerned’ about sales decline, claiming Cisco has a ‘robust pipeline’ with large on-prem infrastructure spending making a comeback
Cisco CEO Chuck Robbins has remained upbeat and assured that customer spending on IT will rebound, despite the vendor suffering a double digit drop in product sales in its fiscal Q1.
For the three months ending 24 October, Cisco's revenues fell by nine per cent to $11.9bn, while operating income dropped by 28 per cent year on year to $2.57bn.
Product revenues tumbled by 13 per cent during the quarter to $8.6bn, affected by a 16 per cent drop in its Infrastructure Platforms sales, including in routing, switching and wireless, and an eight per cent drop in Applications sales.
Despite the declines to its core infrastructure business, security sales were up six per cent compared to the previous year while its Cat 9K and WiFi 6 products also saw growth.
Cisco suffered revenues declines across all of its geographical regions, with the Americas and EMEA both down 10 per cent to $7.2bn and $2.96m respectively and APAC down seven per cent to $1.77bn.
Cisco claims that its revenues were affected by weaknesses in its enterprise and commercial markets.
Despite suffering declines across most of its core product categories, CEO Chuck Robbins told investors that he remains positive about the vendor's future prospects, predicting that its customers' on-prem spending will see a resurgence in the coming quarters.
He told investors that he "isn't too concerned" about the steep 15 per cent decline in enterprise business during the quarter.
The CEO pointed to a vast improvement in its commercial business in Q1 compared to its previous quarter ending in August. He also said Cisco was up against a tough year on year comparison with Q1 last year.
"A lot of that recovery was actually driven by collaboration and security on a global basis, so we feel good about that," he said on an earnings call transcribed by Seeking Alpha.
Robbins predicted that customers will heavily invest in IT infrastructure when they return to office environments driven by a need to change how they work as a result of COVID.
"We see a robust pipeline right now. We see large transactions showing up again in the funnel, which is positive. Enterprises are going to upgrade their core infrastructure. Every meeting is going to have remote attendees and so you're going to have to have [video calling infrastructure] in virtually every conference room. So that's positive. Everybody is moving to this WAN re-architecture with SD-WAN and cloud security. That's what gives me the optimism looking forward."
"What we think is going to happen is, when customers go back, they are going to ensure that they have robust infrastructure. They're going to need to deal with social distancing issues. We think that… you're going to see customers put high definition video in every conference room.
"I think it's still TBD on what really happens. Ninety to 120 days ago there was this belief that we were going to shut down every headquarters building in the world. And now I think people know that it's going to be a balance going back. So we've got the Cat 9K and Wi-Fi 6, which are the future modern platforms that the Company has been moving to that continue to show strength. And so, while we have to wait and see, we're optimistic about it."
One analyst on the earnings call asked why Cisco is performing worse than its competitors, pointing to Juniper Networks and Arista.
In Juniper Networks' Q3 results for the three months ending 30 September, revenues only fell by one per cent year on year to $743.2m, while Arista Networks' revenues fell by 7.5 per cent to $605.4m.
Robbins and CFO Kelly Kramer responded that Cisco's business has been hit harder by changes to DRAM pricing in its compute business and more exposure to the data centre campuses market.