Cisco Systems has posted a 37% increase in profit as revenue grew despite a slowdown in the US enterprise business.
Chief executive John Chambers said he expected the softness in US enterprise business to continue and for US enterprise growth to be very lumpy in the future, on a conference call with analysts. Asked whether US business revenue would rebound at some future point, Chambers said, I would be surprised if you won’t see US enterprise starting back up.
Of the US enterprise industries most affected, financial services and automotive saw the most dramatic decreases in orders year-over-year, Chambers said. Cisco also saw mixed results with the retail sector in the country, he said.
He was quick to point out that demand for Cisco products in other countries were not as dependent on US business as it was three to five years ago. Even in the US, from Cisco’s business perspective, US enterprise is only about 41% of our business in the US now, he said. Even within the US market, the financial sector is about 8% of that 41%. So it is that balance that is unique [to Cisco] and why we grew 13% in the US even though the US enterprise was challenging.
Indeed, it seems the problems were confined to US enterprise business, for which orders, including public sector and federal orders, grew by mid-single digit percent, Chambers said. Total US orders grew 13%, which included service provider growth in the low 20% and commercial orders growth of 20%.
On a global basis, enterprise orders, including public sector, were up in the low double digits. Total enterprise customer segments worldwide also grew in the low double digits, Chambers said.
This helped Cisco grow total revenue 17% to $9.6bn, which was just above analysts’ average forecasts. Profit came in at $2.2bn, or 35 cents a share, or just below analysts’ consensus estimate of 36 cents a share. Shares in the company dropped 9.5% to $29.64 in after-hours trading on the Nasdaq.
Europe remained a strong region of growth for Cisco, with orders up about 20% year-over-year. Chambers singled out Germany as a particularly strong growth region, in which orders rose about 30%, he said.
Orders in emerging markets rose 35%. Chambers said the Asia Pacific region was also very solid, with orders up in high teens. Orders in China also grew in the high teens, while India orders were up about 50% year-over-year, he said.
The fastest-growing product segment for Cisco is now its advanced technology business, which grew in revenue by 27% to $2.4bn. This segment includes unified communications and WebEx, which as a sub-segment grew 70% in revenue year-over-year. Security, also part of advanced tech, grew in revenue in the mid teens.
Services were the next fastest-growing with 24% higher revenue to $1.5bn from a year ago. Routing revenue rose 18% year-over-year to $1.9bn, followed by its larger counterpart, switches, which grew 8% to $3.3bn.
On the call, Chambers also reiterated his vision that collaboration and Web 2.0 tools would drive demand for networking infrastructure and, in turn, Cisco’s growth.