Cisco misses financial targets, hints at NSA scandal impact

Networking bellwether posts small first quarter growth in sales but misses profit targets by a country mile as the impact of the NSA spy scandal on US businesses hits home

Cisco has made an underwhelming start to its new financial year, posting growth in revenues of 1.8%, while GAAP net income dropped by 4.6%.

The networking bellwether headlined its first quarter with revenues of $12.1bn (£7.6bn) and net profit of $2bn (£1.2bn), well under par and substantially below Wall Street’s expectations. Its financial bigwigs also guided low on their second quarter performance, which subsequently caused upset on the trading floor.

On its regular conference call with analysts, Cisco fingered a number of factors for its poor performance, notably a collapse in emerging market sales, where it saw double digit declines ranging from 18% in China, India and Mexico, up to as high as 30% in Russia.

In an ironic twist given his outspoken views on rival Huawei, CEO John Chambers conceded that the recent NSA snooping revelations had “if you look at it, an impact in China.”

Rob Lloyd, Cisco sales boss, added: “This issue has caused increasingly customers to pause and another issue for them to evaluate…. So it’s not having material impact but it’s certainly causing people to stop and then rethink decisions and that is, I think, reflected in our results.”

Chambers also pointed to the recent US federal government shutdown, which cost it approximately $50m and may also have caused buyers to shy away from opening their wallets.

Cutbacks at its set top box business and weakness in its core network hardware products also impacted the numbers, although Chambers turned upbeat on areas such as cloud and datacentre technology, where he said Cisco was delivering the goods.

Similarly, he added, Cisco’s “innovation engine” was also executing well, saying the business was reaping the rewards of its build, buy and partner strategy.

“In the last quarter we introduced game-changing core routing and core switching platforms and took a significant step forward in our security business with the acquisition of Sourcefire,” said Chambers.

“With these and other moves, we are uniquely positioned to help our customers navigate the demands of the cloud, mobility, the application economy and the internet of everything,” he said.

“Our financials are strong …. Our strategy is solid, and we’re leading on the critical transitions in the market,” said Chambers.

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