There are a handful of companies that are considered bellwethers in our sector. So Cisco’s results last night, which beat expectations and lead to a 7% share rise after hours, are worthy of note. But, as has been our theme for many years, ‘Diversity of Performance’ was very noticeable.
At the top line, a Q1 revenue increase of 6% to $11.9b (analysts had expected 4%) was encouraging. Cost control meant profits were up 18%. But it was a veritable curate’s egg. Public sector sales dived 6% and sales to corporates were off 1%. Europe was a real disaster with sales down 10% on flat revenues in the quarter. (Note - Corrected from original post) "We are modelling Europe to get worse before it gets better," said John Chambers, Cisco’s CEO. The switching business that is Cisco’s core was off 2%. China was also off – with disputed rumours of Cisco’s hand in the current Huawei controversy blamed.
Product revenues rose by 4% to c$9.3b, while services revenues were up 11.9% to $2.6b. Chambers said that services would continue to grow faster than product revenues. One sees a lot of IBM in Cisco’s strategy – no bad thing there!
The growth came in video (mainly due to their purchase in UK HQed NDS business earlier in the year for $5b) which grew 30%. Wireless (up 38%) and Data Centre (up 61%) business also boomed as the world and his dog moved to mobile and cloud. Analysts were particularly encouraged by a recovery in US spend. North American sales were up 6.6% with forward orders here up 9%.
So, bellwether Cisco could well give a pointer to the future. If you are involved in the switch to mobile and cloud, particularly in the US, you should be encouraged. If you are in enterprise, last generation systems in Europe particularly to the public sector, the outlook does not look good. But I think you might have heard that message from us many times before.