Cisco revenue, net income fall in Q2 as enterprise, telecom and China pull down

Dip in sales from enterprise, telecom service provider and emerging markets including China pulled down Cisco second quarter revenue and net income, said CEO John Chambers.

As indicated by Cisco earlier, China revenue declined 8 percent in the second quarter of 2014. Like Apple, Cisco is betting big on China for enhancing growth. This time, Cisco did not share its performance in India, one of the growth markets for the networking vendor.

The end result: Cisco Q2 revenue dipped 7.8 percent to $11.2 billion and net income declined 54.5 percent to $54.5 percent as compared with year-ago quarter.

Cisco CEO John Chambers, announcing second quarter results for the period ended January 25, 2014, said: “Our financials are strong and our strategy is solid. The major market transitions are networking centric and as the Internet of Everything becomes more important to business, cities and countries, Cisco is well positioned to help our customers solve their biggest business problems.”

Huawei, ZTE and new pressure

Enterprise IT vendor admitted that it did not get enough support from the U.S., where it is facing competition from Huawei, ZTE, Juniper Networks, HP, etc.

Though the entry of Huawei into the U.S. market was not successful, it started playing on the price front. In fact, Cisco admitted that price was one of the factors for its poor performance in the second quarter.

Americas declined 5 percent. U.S. public sector declined 4 percent, within U.S. public sector state and local and education grew 7 percent and U.S. federal declined 16 percent. U.S. service providers declined 11 percent as Cisco managed through the SP Video transition and product cycles.

Cisco revenue in Q2 2014

Challenges in emerging markets

Asia-Pacific dipped 5 percent. Cisco’s China revenue declined 8 percent on account of economic and political dynamics in that country. Earlier, Cisco CEO indicated that China revenue will face pressure due to spying initiatives supported by the U.S. government.

The company said Europe, Middle East Africa and Russia region declined 2 percent. Northern Europe and the U.K. are showing good momentum, while Southern Europe continues to be challenging for Cisco. Europe is stabilizing. They are still fragile especially in the South.

Cisco enterprise declined 2 percent, commercial grew 1 percent, public sector grew 1 percent and service provider declined 12 percent.

Revenue for H1 of fiscal 2014 was $23.2 billion against $24.0 billion. Net income in H1 was $3.4 billion against $5.2 billion.

“We are building the platform for the Internet of Everything with scale and security to address the unparalleled complex the requirements. We plan to continue to disrupt the market and disrupt ourselves to deliver the value and solutions our customers require,” Cisco CEO said.

No Better Future

For Q3, Cisco expects revenue to decline in the range of down 6 percent to down 8 percent. This indicates that Cisco needs a fresh strategy. But Chambers does not want to alter strategy.

“There will be no change in its strategy as we have moved from a compute centric to a network-centric model for IT. Cisco is building the simple, smart and highly secure solutions that will enable our customers to capitalize on the cost efficiencies, agility and growth opportunities that lie ahead,” Chambers said during the analyst call.

Cisco CEO said the company’s year-over-year orders are up 13 percent in U.S. enterprise and 10 percent in U.S. commercial.

Emerging market orders declined 3 percent year-over-year as compared to last quarter’s down 12 percent with the BRIC, Mexico down 10 percent this quarter. SP orders declined 12 percent and product transitions in core routing and switching contributing to double-digit revenue declines.

Baburajan K