Cisco's Chambers Sees 'Lumpy' U.S. Enterprise Market7:50 PM EST Wed. Nov. 07, 2007
Cisco Systems grew sales and earnings for its first quarter despite a slowdown in U.S. enterprise sales, a segment Chairman and CEO John Chambers said would be "lumpy" moving forward.
"The U.S. enterprise, probably as a surprise to no one, is experiencing some softness ... We expect and continue to expect U.S. enterprise growth to be very lumpy both by U.S. areas and industries moving forward," Chambers said during a conference call to discuss the San Jose, Calf.-based vendor's first quarter fiscal 2008 financial results.
The U.S. service provider and commercial markets remained strong for the networking vendor, both turning in year-over-year order growth of roughly 20 percent. Not so for the enterprise space, Chambers said.
Cisco's U.S. enterprise business, including the public sector and federal, saw year-over-year order growth in the mid-single digits. That included federal year-over-year order growth of 17 percent, "while the rest of enterprise growth was down slightly from a year-over-year perspective," Chambers said.
Chambers saw "pretty dramatic" order decreases in some U.S. enterprise segments.
"In financial services, especially the large financial institutions, we did see pretty dramatic year-over-year decreases in orders, and the same was true in areas such as automotive. Retail was, candidly, a mix in terms of the approach, so we saw some very mixed results from the retail segment," Chambers said. "Those are probably the three industry categories that were most affected."
Cisco took steps this week to bolster both its commercial and enterprise business in the U.S. and abroad. The vendor launched new SMB VoIP and networking products, noting that it has added 1,000 certified SMB solution providers to its global partner ranks.
The company also launched new high-end switches, bringing virtualization to enterprise networks with a new module for its flagship Catalyst 6500 switches and rolling out the next generation of its Catalyst 4500 platform. Some U.S. enterprise customers were waiting for the new switches before moving ahead with purchases, Chambers noted.
NEXT: Global economy less dependent on U.S.
Globally, the economic outlook remains strong as foreign economies have become less dependent on the U.S., Chambers said.
"When I talk to my customers, they feel good on a global basis. The confidence is at a different level, and it isn't the concern they used to have that if the U.S. catches cold, they're going to be in real trouble," Chambers said. "They're dependent on the U.S. for part of their growth, but it's much more balanced. This is where the global economy may help the U.S. out of it."
Balance across geographies and product segments also insulated Cisco from dips in the U.S. enterprise space, he said.
"If you look overall at our balance, it feels good. We can handle two or three out of our 20 areas of focus being off. They will be offset by others," Chambers said.
Cisco's orders for the quarter in Europe grew year-over-year by approximately 20 percent, in the high teens for Asia-Pacific and by 35 percent in emerging markets, Chambers said.
For the quarter, ended Oct. 27, Cisco reported earnings of $2.21 billion, or 35 cents per share, up more than 25 percent from $1.61 billion, or 26 cents per share, for the same quarter a year ago.
Revenue for the quarter climbed nearly 17 percent to $9.55 billion, up from $8.18 billion in the year-ago quarter.
Excluding charges, Cisco earned 40 cents per share, beating Wall Street expectations of by four cents. Analysts expected the company to report earnings of 36 cents per share on revenue of $9.53 billion, according to Thomson Financial/First Call.
Chambers offered revenue growth guidance for the second quarter of 16 percent year-over-year and 13 percent to 16 percent year-over-year for fiscal 2008.
Shares of Cisco dipped $3.00 to $29.75 in after-hours trading, as second-quarter guidance fell below analysts' expectations.