As the 800lb gorilla of the IT/Tech/Telecom vendor community, Cisco's quarterly results are a key bellweather that the markets keep a close eye on to gauge the sector's overall health. So when they miss big, traders dive for cover.
For the quarter ending October 31, Cisco posted revenues of $12.09B well shy of the composite analyst estimates of $12.34B. Earnings per share of $0.53 not including exceptional items was pretty good, but the real downer came with their forward guidance.
For next quarter they're forecasting a surprisingly steep decline of 8-10% in revenue and a sparse $0.45-0.47 in earnings per share. There are many factors driving that according to Cisco, and none are pleasant and many are largely out of their control. The government shutdown hurt things both with government revenues themselves and with the secondary effects on decision-making due to the increased economic uncertainty. And revenues from emerging markets are getting hit especially hard amid the political fallout of the NSA spying revelations, to the extent that AllThingsD described it as 'falling off a cliff'.
Now the effects of competition can't be ignored, as smaller, more agile competitors have been quite doing well lately and Cisco is on defense on many fronts. But Cisco's results include an extra month beyond the other reports we have seen, and it was in that month that they say they saw much of the major negative slide in sales in emerging markets like China, Russia, Brazil, and Mexico. Hence, if similar phenomena are affecting others in the sector we may not see it show up until Q4 earnings come out after two long cold winter months.
Of course, even such effects aren't Cisco-specific they could be short term. But it's probably going to be a while before we get another data point to see if Cisco's dismal forecast is a temporary perfect storm or something uglier. On the other hand, Cisco's troubles could be a boon to some non-US vendors. Huawei certainly won't be hurting, and Alcatel-Lucent could certainly use a silver lining.
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