Cisco latest victim of downturn
Published: 07 Feb 2001 08:40 GMT
Internet equipment leader Cisco Systems warned investors to expect flat to lower revenue in coming quarters, with full-year revenue growth in the "40 percent range" instead of the 50 to 60 percent range Cisco had forecast as recently as three months ago.
Cisco Systems reported second-quarter earnings of 18 cents per share, missing Wall Street expectations by one penny and saying it will remain "cautious" as the economy slows.
Cisco's top executives guided Wall Street analysts to become "more conservative" on their revenue growth forecasts for the upcoming fiscal third quarter ended in April and the fourth quarter ended in July. The 40 percent rate was a sharp drop from Cisco's previous expectations, before a sudden slowdown in technology spending began to grip communications markets in December, it said.
Chief financial officer Larry Carter told financial analysts to expect revenue growth in its third quarter to be "flat to down 5 percent" from second quarter's $6.75bn (£4.12bn) and fourth quarter to be "flat with Q3 [third quarter]".
Cisco's comments suggest that it expects revenues ranging around $26.5bn for its fiscal year ending in July 2001, assuming that the company grows about 40 percent from the $18.9bn it reported in its last fiscal year ended in July 2000. Shares fell in after-hours trading, down $1.75 to $34.
Cisco's pro forma second-quarter profit was $1.33bn, compared with $897m, or 12 cents per share, for the same period in 2000. Second-quarter revenue increased 55 percent, to $6.75bn from $4.36bn in 2000.
Analysts expected Cisco to earn 19 cents per share on revenue of $7.22bn, according to a survey of analysts by First Call. "We remain confident about the market opportunity ahead of us over the next three to five years," Cisco chief executive John Chambers said in a statement. "This confidence is based on the continued impact of the Internet on productivity, and just how much work needs to be done before every company is an e-company and a majority of the world's countries are e-countries."
However, Chambers also sounded a cautionary note, saying the company "remain[s] cautious about the implications of a brief pause in the current ten-year expansion of the US economy."
Tuesday's results show that Cisco hasn't been immune to the slowdown in network equipment sales that forced rivals 3Com, Lucent Technologies and Foundry Networks to announce earnings warnings in December. The networking leader historically has been on a roll, beating Wall Street analysts' expectations 14 quarters in a row before Tuesday's results, analysts said.
SG Cowen analyst Michael Jung said he was not surprised Cisco missed estimates. Chambers in January warned that the second quarter was more challenging than the company expected. Subsequently, the company instituted a partial hiring freeze to help control costs. "It was expected. It's not surprising they came in shy considering the comments that Chambers made," Jung said.
Jung said Cisco missed estimates because of the slowing economy and not because of competition. Analysts have said Cisco is better positioned to weather a downturn than most companies. Unlike some of Cisco's rivals, analysts said Cisco is equally strong in sales of equipment to both service providers and corporations, better protecting it from potential cutbacks in service provider spending ahead.
Cisco executives are expected to give a forecast for the third quarter and beyond in a conference call with financial analysts Tuesday afternoon.
Reuters contributed to this story.
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