Cisco’s Outlook Disappointing Despite Profit Increase
In the latest quarter, Cisco Systems Inc. benefitted from an increased growth in numerous product lines, but there is turbulence ahead for the Silicon Valley giant. According to the networking-equipment make, there was a 35% increase in profit in its first fiscal period whereas the revenue saw a boost of 3.6%. The adjusted profit of Cisco didn’t just surpass its own expectations, but also the estimates made by Wall Street. However, in after-hours trading, there was a 5% decline in its shares because the projected profit and revenue for the current quarter provided by the company was way below the estimates of the analysts.
Lower orders were cited by the company for this decline because of currency exchange problems and macroeconomic factors. The chief executive of the company, Chuck Robbins said that they weren’t going to take this decline in figures lightly. Furthermore, he also said that these problems would ease in the second half of their fiscal year. He also said that there was a positive indication because their orders in China increased by 40% in the first quarter after continuous declines in the previous quarters due to local fears and misconceptions about the security of foreign hardware.
The hardware provided by Cisco is used for connecting computers to each other and the internet and the company experiences changes in business conditions before others in the industry. The revenue of the company become to grow in the first fiscal quarter of the previous year after various lackluster quarters. Mr. Robbins took up his post in July after John Chambers, who remains Cisco’s chairman and had held the position of CEO for 20 years. Some changes have been made in tactics by the new CEO, which include shutting down some businesses and entering into alliances with some companies over risky ventures.
One such example was seen on Monday when an alliance was formed by Cisco with Ericsson AB. The while point of the pact is to combine the strength of Cisco in internet technology with the expertise of the Swedish company in equipment made for wireless operators. The companies have agreed to work together in areas, which includes improving the performance of existing products whereas Cisco’s gear will be resold by Ericsson. In the short term, Cisco’s momentum will be scrutinized closely by Wall Street in its two largest businesses; routing and switching businesses. These models have shown improvements in recent quarters after the introduction of new models in the market.
On Thursday, the company said that there was a 5% increase in switching revenue, which was an improvement as compared to the 2% increase seen in August for the fourth fiscal quarter. Nevertheless, routers didn’t show such a positive improvement, even though this product was responsible for the company’s popularity in the late 1980s. According to Cisco, there was a fall in revenue by 8% in routing, which was a negative swing as there had been a boost of 3% in the quarter ended in July. This was probably due to change in plans by telecommunications companies.