Cisco delivered a steady set of Q3 results last night. But the networking bellwether’s comments around the possibility of a slowdown to come have sent its share price crashing and raised the spectre of even tougher times ahead for tech firms.
The Q3 performance was fine. Total revenue was up 7% year-on-year to $11.6bn. EMEA revenue was up 5%, although orders in the region were flat year-on-year. EBIT was up 26%, pushing Cisco’s EBIT margin up to 24%, compared to 20% a year ago. Once again, there are plenty of signs in the numbers that Cisco’s more focused strategy is enabling it to compete strongly in the networking space globally and to benefit from growth in areas like cloud and video (see Cisco stays on track with Q2 growth).
It’s the outlook for the coming quarter that has sent Cisco’s share price down 9% in after hours trading. Q4 (which runs from May to July) is traditionally strong for Cisco. But the company is guiding at just 2-5% growth, i.e. a sequential decline compared to Q3.
In his call with analysts, long-standing Chairman and CEO John Chambers revealed plenty of concerns about the macroeconomic environment and its potential to hit his business in the months ahead. Admittedly, he did point to some evidence of improvements in the environment and his belief that many customers would like to increase spending in the second half of 2012. However the comments that stuck with the audience were those about “an uncertain and cautious wait-and-see type of environment” in which clients are holding back on tech investment decisions because of the unpredictability of the situation in the Eurozone and government policy in individual countries.
Not surprisingly, there’s plenty of red showing in after hours trading in tech stocks following these cautious comments from Cisco. Network rival Juniper is down 3%, for example, while HP has slipped 1%.
Anyone who thought the tech sector was steadily returning to some sort of reliable growth just got a much-needed reminder that the outlook still holds many uncertainties for us all.