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Cisco yesterday announced Q1 revenue growth of 2% year-on-year to $12.1bn – which was below management expectations. The company had previously issued a warning during Q4 results that pushed shares down (see Cisco warns). From a profitability perspective, the operating margin declined from 22.3% to 20.3%.
Sadly for shareholders, the picture does not look any prettier for next quarter. CEO, John Chambers, says he does “not anticipate material improvement in our order growth” and expects total revenue to decline in the range of 8% to 10% on a year-over-year basis. Consequently, shares are trading down by about 12%.
One of the key causes becomes obvious when you break down the results by region: The Europe, Middle East, Africa and Russia region declined 4%, but Cisco’s top five emerging markets declined 21%. Country examples include: Brazil down 25%, Mexico down 18%, India down 18%, China down 18% and Russia down a massive 30%. Cisco was also hit in the quarter by the US government ‘shut down’, to the tune of $50m.
Of course, for a company of Cisco’s size there are always going to be some positives. For example, its data centre business grew 44% as customers continue to adopt its unified computing systems. Unfortunately, for the time being at least, the negatives are outweighing the positives.
