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The fall-out from US president Donald Trump’s ongoing trade war with China is beginning to hurt US technology suppliers selling into the Chinese market, according to Cisco CEO Chuck Robbins.
Although Cisco describes its Chinese operations as a very small part of the business, contributing less than 3% of its total sales, Robbins said the slowdown in its Chinese operations had nevertheless been a significant one.
“The overall Chinese market… is certainly not a major play for us, but it has just dropped precipitously in light of the trade discussions,” said Robbins. “It’s been slowly declining and we saw it even decline more rapidly last quarter.
“What we’ve seen is in the state-owned enterprises… we’re being uninvited to bid. We’re not even being allowed to even participate any more…. That’s where the large impact was this past quarter.”
Cisco is by no means the first business to have been impacted by Trump’s trade war. In July 2019, SAP CEO Bill McDermott said that while the Chinese economy was healthy and the software firm’s sales pipeline robust, he was seeing some “postponed decisions” in the region.
On a conference call – transcribed by financial website Seeking Alpha – to mark Cisco’s fourth-quarter and full-year results, Robbins said the slowdown in its Chinese business contributed to issues Cisco was seeing across its enterprise business.
While Robbins did not specifically reference Brexit, he noted that enterprise sales in the UK were weaker at the back end of Cisco’s financial year, and that the US had also been slower, although this was in part due to two large software deals in 2018 that made comparisons harder.
For the period ending 27 July 2019, Cisco reported Q4 GAAP revenues of $13.4bn (£11.1bn), up 6% year on year – excluding its divested service provider video business – and net income of $2.8bn, down 42% year on year, although this change reflects charges related to new tax and employment legislation in the US. On a non-GAAP basis, net income rose by 9% from $3.3bn to $3.6bn.
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Full-year GAAP revenues of $51.7bn were up 7%, again not counting the divested unit, and net income rose from just $100m to $11.6bn – or by 9% from $12.7bn to $13.8bn on a non-GAAP basis.
Trade wars and macroeconomic troubles aside, Robbins hailed a “strong end to a great year” and said Cisco continued to execute well, “delivering tremendous innovation across our portfolio and extending our market leadership”.
Highlights included the addition of artificial intelligence and machine learning capabilities across its portfolio, including in network management and analytics, its datacentre networking lines, and its collaboration technology. Cisco’s cyber security business was also a strong performer, driven by the extension of its portfolio to provide an end-to-end security architecture capable of protecting multi-cloud environments.