Cisco forecast disappoints as global worries weigh on client spending

Cisco forecast disappoints as global worries weigh on client spending

(Reuters) – Cisco Systems Inc (CSCO.O) on Wednesday forecast second-quarter revenue and profit below expectations as increasing global economic uncertainties kept clients away from spending more on its routers and switches.

FILE PHOTO: A man passes under a Cisco logo at the Mobile World Congress in Barcelona, Spain February 25, 2019. REUTERS/Sergio Perez

Shares of the company fell 5% to $46.01 after bell as investors worry over the growth of the network gear maker, which has been shifting its focus to cyber security and software.

Wall Street has been fretting over the impact of the U.S.-China trade war on the company’s sale of switches and routers, as some of these are made in China.

Cisco said in August U.S. tariffs along with Chinese customers shunning its network gear were hurting its business.

Total product orders fell 4% in the first quarter, with product orders in Asia Pacific, Japan and China region slipping 5%, Cisco said.

“We began to see some early signs of some macro impact toward the end of Q4. And we just basically saw that continue throughout the quarter,” Chief Executive Officer Chuck Robbins said on a post earnings call with analysts.

“The entire (first) quarter was worse than we had expected when we began and it was fairly broad-based.”

Elazar Advisors analyst Chaim Siegel said the company’s results pointed to a slowdown spreading globally, which was not a good sign for global confidence on spending.

Cisco expects revenue in the current quarter to drop by 3% to 5% from a year earlier to between $12.07 billion to $11.82 billion. Analysts were expecting revenue of $12.77 billion, according to IBES data from Refinitiv.

It forecast adjusted profit to be between 75 cents and 77 cents per share, below analysts’ average estimate of 79 cents.

“This is not a one-quarter problem. It’s likely a multiple quarter problem. We expect street estimates to come down across multiple quarters,” Needham analyst Alex Henderson said.

The company’s software and cyber security businesses helped the Dow-component beat estimates for the first quarter ended Oct. 26. Excluding items, Cisco earned 84 cents per share and beat estimates of 81 cents.

Reporting by Akanksha Rana in Bengaluru; Editing by Arun Koyyur

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