Cisco Systems posted its largest quarterly revenue increase since 2013 but delivered lower-than-expected guidance, citing weak service-provider spending and the fallout from U.S.-China trade tensions.
The networking-equipment giant said Wednesday it expects revenue for the current quarter to be flat to 2% higher from the prior year and earnings per share of between 80 cents to 82 cents. Analysts had forecast revenue growth of about 2.5% and EPS of 83 cents.
The largest drivers of the outlook, Cisco officials said during an earnings call, are the continued decline in business from service providers, and China, where sales have “dropped precipitously” with the trade dispute.
“We definitely saw significant impact on our business in China as it relates to what’s going on with the trade war right now,” CEO Chuck Robbins said.
In after-hours trading Wednesday, Cisco shares dropped 3.9% to $50.61, adding to losses during the regular session. “Cisco is considered a proxy for high-tech hardware demand, and analysts have been watching how the company navigates trade issues,” The Wall Street Journal noted.
In the fourth quarter, Cisco reported earnings of 83 cents per share as revenue rose 6% to $13.43 billion, beating estimates of EPS of 82 cents on revenue of $13.38 billion. “Our Q4 results marked a strong end to a great year,” Robbins said in a news release.
He told analysts there was “no real shift positive or negative” in service-provider orders in the Americas but “In Asia, we saw continued weakening in our China service provider business and we had two massive buildouts in India a year ago that just didn’t replicate this year with the two major players there.”
“SP is still a large part of the business and that’s driving this outlook that you are seeing,” CFO Kelly Kramer said.
According to Robbins, China is not “a major play” for Cisco but the company is not being allowed to participated in bidding for contracts from state-owned enterprises. “That’s where the the large impact was this past quarter,” he said.