Did Cisco Just Say Demand is “Very Lumpy?”
Did Cisco Just Say Demand is “Very Lumpy?” by Wolf Richter – Wolf Street
It has a history of tripping the markets.
Revenues in the current quarter – Q3 of its fiscal year – would drop 4% to 6% year-over-year, Cisco said after hours today. Shares plunged 8% to around $31 in late trading. Timing of the announcement was impeccable: Minutes after the Dow finished its 372-point plunge.
It also announced 1,100 layoffs on top of the 5,500 layoffs it revealed last August (7% of its workforce at the time), and it added $814 million in charges related to those restructuring efforts, spread over Q3 and Q4.
Cisco has a history of tripping up the markets.
In an earnings call in November 2007, then CEO John Chambers famously used “very lumpy” to describe growth in the US. The S&P 500 and the Dow had just edged down from all-time highs. The market was still blissfully ignoring the hissing from the housing bubble and the stench from the banks. Cisco’s quarter had been phenomenal, with revenues up 17%. But after some gushing, Chambers said revenue growth in the US would be “very lumpy.” The Financial Crisis was next.
So Cisco’s revenue “growth” – in quotes because it’s a decline – no longer compares to the heady days of that time. Revenue in its fiscal Q3 fell 0.5%% to $11.94 billion, with product revenue flat and service revenue down 2%. For the three quarters combined, revenues are down 2%.
But cost cutting has been effective: operating expenses fell 8%, particularly in the wrong places for a company with declining sales: In research and development, and in sales and marketing. So net income rose 7%.
But instead of continuing down this path of revenue stagnation, Cisco indicated that it would go down a path of sharper revenue declines, and expected its Q4 revenues to fall by 4% to 6% year-over-year.
With Q4 2016 revenues at $12.6 billion, a 6% decline would bring Q4 2017 to $11.8 billion, which would bring fiscal 2017 annual revenues down to $47.7 billion, the lowest since 2014, and barely above 2012 revenues.
This chart includes estimated annual revenues for 2017 as per Cisco’s lowered Q4 forecast. In other words, after four years of stagnation comes the decline: