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Cisco reports solid Q1 but warns that Q2 will be tough

The fledgling areas of the business might be growing, but not nearly fast enough to offset the drop in demand in switching

Cisco beat analysts’ estimates with a reasonable Q1, but with demand slowing for its networking hardware, the company warned that the upcoming quarter would be challenging.

The world’s largest supplier of networking hardware has been working hard to bolster new areas of the business, such as secuirty. And it's paying off to some extent. Revenue from security business rose 11% to $540m in the first quarter ended October 29. However, the new high-growth areas were not able to offset the declines in its bread and butter networking business. In fact, revenues were down almost across the board. The switching business, where Cisco makes the bulk of its cash, fell 7% to $3.72bn. Collaboration fell 3%, Data Center declined 3%, Wireless fell 2% and Service Provider Video dropped 2%.

Looking at regions, the Americas were down by 1%, EMEA remained flat, and APJC was up 6%.

Cisco's net profit fell 4.4%  year over year to $2.32bn, while revenue fell 2.6% to $12.35bn.

As always, CEO Chuck Robbins, managed to put a positive spin on the largely bleak news.

“We continue to show great progress in how we are aligning our business model to the way our customers want to consume Cisco technology,” Robbins said on the conference call. “There are many strong indicators that we are driving this change including the 48% growth in our product deferred revenue related to our recurring software and subscriptions.”

Cisco’s commander in chief also had something to say about the soon-to-be commander in chief of the United States.

"Post-election, I think most CEOs I talk to are pragmatic about the result, and now we are all focused on the policy issues that matter to each of our companies," Robbins said. "I think president-elect Trump appears to be very business-oriented and focused on driving the U.S. economy." 

Shares fell more than 4% in extended trading.


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