European economy dents Cisco forecast

The stormy outlook for the European economy leads the networking firm to predict a weak quarter

Cisco today announced positive results for the third quarter of 2012, but blamed Europe for a negative outlook over the next three months.

Income in the three month period rose by 20% to total $2.2bn, with sales increasing by 7% to $11.6bn. However John Chambers at the networking giant, warned the next quarter would not be as successful.

"We are still in an uncertain environment economically," he said during the results call, blaming European economic issues and fears around a lack of growth in India for the climate.

Chambers surprised analysts when he predicted a meagre rise in revenues of between just 2% and 5% in the next quarter, which in turn sent shares tumbling down by more than 8%, hitting $17.20 in extended trading on Wednesday.

He tried to reassure those listening to the call, however, adding: “We will muddle through this with a little bit of bumps on the road.”

Clive Longbottom, founder of analyst form Quocirca, claimed it was the right move for Chambers to reveal the bad news and the “knee-jerk reaction” of investors would be likely to settle out by the next results call.

However, he believed Chambers had to be careful when blaming Europe, especially the Euro crisis, which he claimed was “a political, rather than a true financial, issue.”

“The reason Europe isn't doing well is that it is still under recession and no business wants to spend when times are this tough,” Longbottom told Computer Weekly.

“Cisco is seen by many [as a provider of] plumbing and as long as existing network kit is working, there is little perceived need to upgrade.”

The analyst concluded that Chambers was playing his “normal, canny game” and stock prices would turn around.

“Cisco is not having a good time of it, but few networking companies are, and at least revenues are still up overall,” added Longbottom.  

“When the next quarter’s figures are released, as long as Chambers has got his future-gazing correct, I'd expect Cisco stock to be back somewhere close to where it was yesterday before the warnings.”

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