Businesses around the world are getting more cautious in the face of economic and geopolitical uncertainty, causing a broad-based dip in orders for new equipment, Cisco Systems warned on Wednesday.
The signs of falling business confidence prompted the US networking company to issue weak financial guidance for the second quarter in a row, wiping 5 per cent from its stock price in after-market trading.
Chuck Robbins, chief executive, blamed a number of issues for the waning confidence, including the troubles on the streets of Hong Kong, China’s economic slowdown, US trade policy and the UK’s exit from the EU. “There’s been a lack of clarity for a while and it’s finally come into play,” he said. He added, however, that a rapid rebound was possible if any of the geopolitical issues were resolved.
Speaking in an interview with the Financial Times, Mr Robbins said the leading indicators inside his business pointed to a more uncertain period ahead, such as “when you see our teams missing their weekly sales targets repeatedly”.
He added that the company was having more difficulty closing orders as customers grew cautious, for instance by requiring more internal approvals before signing deals, delaying closings or trimming back the size of contacts. In the latest quarter, Cisco said its orders in the Americas and Emea region had each fallen 3 per cent, with a 5 per cent fall in Asia.
As a result, Cisco predicted that in the current quarter its revenue would fall between 3-5 per cent from a year before, implying revenue of $11.9bn at the midpoint of its range. That compares with the $12.8bn that Wall Street had been expecting.
It also said that pro forma earnings per share were likely to be in the range of 75-77 cents, below the consensus analyst expectation of 79 cents.
Mr Robbins first warned that macroeconomic worries were starting to bite three months ago, leading him to predict that the company might not see any revenue growth in the three months to the end of October. In the event, Cisco topped Wall Street’s downbeat expectations. It reported revenue of $13.2bn, an increase of 2 per cent and above the $13.1bn the market had expected. It also reported a 12 per cent increase in pro forma earnings per share, to 84 cents, or 3 cents ahead of expectations.
Despite the weaker outlook, Cisco said that a shift to selling more software was set to underpin its profit margins. Mr Robbins also predicted that the slowdown would only represent a “pause” in orders, because many customers were still facing a big transition in their technology infrastructure.