Cisco Q2 Revenue Softens As Macro Uncertainties Affect IT Spending

But some macroeconomic issues have started to settle, such as Brexit and the trade between U.S. and China, which Cisco CEO Chuck Robbins said will help spending pick up.


Longer decision-making cycles for businesses, macro uncertainties, and unique geographical issues plagued Cisco Systems during its second fiscal quarter of 2020.

Cisco last quarter told investors that it expected sales in its fiscal second quarter to decline by 3 to 5 percent compared to the same period a year earlier due to macroeconomic pressure and the tech giant's prediction was correct. For the quarter that ended on Jan. 25, 2020, Cisco's revenue declined 4 percent to $12.01 billion from $12.45 billion in the year-ago quarter, with earnings per share increasing 5 percent to 77 cents up from 73 cents year-over-year on a non-GAAP basis.

Enterprise revenues dropped 7 percent during the second quarter, the San Jose, Calif.-based tech giant reported on Wednesday during its Q2 2020 earnings call.

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Cisco CEO Chuck Robbins in August said that Cisco had started to see early indications of macro impact and in Q1, the impact had been greater than Cisco anticipated. Specifically, its service provider segment has experienced double-digit decline along with falling revenues in China for the past three quarters. In Q2 2020, Cisco's service provider segment continued to fall by 11 percent and revenues in China fell about 30 percent.

But some issues have started to settle, such as Brexit's completion and the inking of the first phase of the U.S.-China trade deal, Robbins said. Trends likes Wi-Fi 6 and 5G are also causing customers to "take a pause," he said. While customers are being cautious for now, Cisco expects enterprise sales to pick up.

"Once this uncertainty passes, we expect to see spending recover as technology continues to be at the heart of everything they do," Robbins said.

Robbins also pointed to Cisco's December Silicon One announcement and assured investors that the service provider space was not a "forgotten" market for Cisco. Trends like 5G, according to Cisco, will particularly benefit the networking giant, he said. "We have about five years of R&D in this market," he said. "We have a lot of commitment to [the service provider] space."

Cisco's Q2 2020 software subscriptions now account for 72 percent of its total software revenue, a percentage that continues to tick up each quarter. Last March, Cisco was deriving 65 percent of its software revenue from subscriptions, Robbins told CRN.

Cisco's Infrastructure segment, which includes the core switching and routing businesses as well as wireless and data center products, decreased by 8 percent during the quarter to $6.59 billion.

The company's Applications business segment, which includes AppDynamics and the company's video conferencing and collaboration portfolio, fell 8 percent to $1.35 billion in revenue in Q2.

The security segment continued to be a bright spot on Cisco's financials, posting a 9 percent revenue increase during the second quarter of 2020. Cisco's security business rose to $748 million, said Kelly Kramer, Cisco's executive vice president and CFO.

Cisco's net income rose 2 percent to $2.88 billion during Q2 2020, up from $2.82 billion year-over-year.

Cisco stock declined by 1.46 percent in after-hours trading on Wednesday to $48.95.