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Weak telecom spending, emerging markets weigh on Cisco forecast

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November 12
8:20 PM 2014

Network equipment maker Cisco Systems Inc forecast current-quarter profit below analysts' average estimate, weighed down by capital budget cuts at telecom service providers and weak sales in emerging markets.

Cisco's shares reversed course in extended trading following the forecast and fell 1 percent. They had risen after the company reported a better-than-expected revenue and profit for the first quarter.

"Service provider is the big challenge...that's due to two to three U.S. service providers who have dramatically slowed the order rates with us," Chief Executive John Chambers said on a post-earnings conference call with analysts.

AT&T, the No. 2 U.S. telecom services provider, said last week that it would trim its 2015 capital spending outlook to $18 billion from $21 billion.

Cisco has also struggled with sluggish sales and increased competition in emerging markets. The company said sales in China fell by a third in the first quarter.

Revenue from U.S. service providers dropped 18 percent, while it declined 6 percent in emerging countries, the company said.

The company forecast adjusted profit of between 50-52 cents per share and revenue growth in the range of 4-7 percent for the second quarter ending January.

Analysts were expecting a profit of 53 cents per share, according to Thomson Reuters I/B/E/S.

Cisco reported better-than-expected first-quarter revenue and profit, thanks to an increase in demand for its new high-end switches and routers.

The company also said it planned to appoint senior vice president Kelly Kramer as chief financial officer. Current CFO Frank Calderoni has said he would step down effective Jan. 1.

Total revenue rose to $12.25 billion from $12.09 billion.

Net profit fell to $1.83 billion, or 35 cents per share, from $2 billion, or 37 cents per share, a year earlier.

On an adjusted basis, earnings were 54 cents per share.

Analysts had expected a profit of 52 cents per share on revenue of $12.16 billion.

Cisco's shares closed at $25.11 on the Nasdaq on Wednesday.

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