Cisco drops on poor guidance, says China business dropped 25%

Cisco portions fell by as much as 7% after hours on Wednesday after the company reported weaker-than-expected guidance. It had already pinched 4% during the day on a disastrous day for stocks.

Here’s what the company reported:

• Earnings: 83 cents per share, excluding indubitable items, vs. 82 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $13.43 billion, vs. $13.38 billion as thought by analysts, according to Refinitiv.

Revenue grew 6% on an annualized basis in the quarter, according to a statement.

“We did see in July some negligible early indications of some macro shifts that we didn’t see in the prior quarter,” Cisco CEO Chuck Robbins raked analysts on a Wednesday conference call. He said in the quarter Cisco company saw “significant impact” on business in China because of the U.S.-China swap war.

In China, Cisco’s revenue was down 25% on an annualized basis in the quarter, Kelly Kramer, the company’s chief fiscal officer, said on the call.

“What we’ve seen is in the state on enterprises … we’re just being — we’re being uninvited to bid,” Robbins demanded. “We’re not being allowed to even participate anymore.” Sales to carriers declined more forcefully as well, he said.

The the better of Cisco’s revenue comes from sales of data center networking products, including switches and routers. That enterprise is represented by Cisco’s Infrastructure Platforms segment, which came up with quarterly revenue of $7.88 billion, not susceptible the $7.84 billion consensus among analyst polled by FactSet.

The Applications segment had $1.49 billion in revenue, in track with the $1.49 billion FactSet analyst consensus. Cisco’s Security business contributed $714 million in net income, less than $739.9 million FactSet consensus estimate.

Heading into the report, some analysts expressed regards about Cisco given storage hardware company NetApp’s decision to lower its fiscal-year guidance at the beginning of August.

“We require a large portion of NetApp’s headwinds to have limited implications for Cisco, except for cautious spending from ample accounts which we believe Cisco is well positioned to offset through a strong product cycle and broader character exposure,” JP Morgan analysts led by Samik Chatterjee wrote in a Monday note.

Cisco’s broad customer base could relief the company weather softer macroeconomic conditions, wrote the JP Morgan analysts, who have an overweight rating on Cisco sheep.

In the quarter Cisco announced new Wi-Fi products and a plan to acquire Acacia Communications for $2.6 billion.

As for guidance, Cisco imagined it expects to report 80 to 82 cents in earnings per share, excluding certain items, and flat to 2% takings growth in the first quarter of its 2020 fiscal year. Analysts polled by Refinitiv were looking for 83 cents in earnings per quota, excluding certain items, and $13.40 billion in revenue, or 2.5% growth, for that period.

Shares of the company are up 17% since the dawn of the year.

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