Cisco Is Hopeful Despite Data Center Decline

February 11, 2016, 12:58 AM UTC
Robbins listens a question from media during a news conference in New Delhi
Chuck Robbins, incoming CEO of Cisco, listens a question from media during a news conference in New Delhi, India, June 18, 2015. REUTERS/Adnan Abidi - RTX1H2S1
Photograph by Adnan Abidi — Reuters

Wall Street’s recent turmoil is affecting the way companies are buying data center hardware. That’s one of the big takeaways from Cisco’s quarterly earnings on Wednesday

Cisco logged $11.8 billion in revenue in its fiscal second quarter, a 2% increase from the $11.6 billion during the same period a year earlier. Those numbers don’t include the revenue from the company’s set-top box product line, which Cisco is selling off to Paris-based Technicolor.

The networking giant also reported profits per share of 57 cents excluding certain costs, which beat analyst expectations of 54 cents. Based on the strong results, investors sent Cisco’s shares (CSCO) jumping 7.4% in after-hours trading to $24.17.

However, the company’s core switching business saw a 4% year-over year decline in sales to $3.5 billion while its data center business dropped 3% year-over-year to $822 million.

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Cisco CEO Chuck Robbins attributed those declines to recent troubles in the global markets, which have been in steep decline since the new year. The first three weeks of January were particularly rough, he said, which caused some customers to decide against buying new technology infrastructure, he explained.

“We saw customers as they were trying to digest what was going on,” Robbins said before putting a hopeful spin on the tumult. “They just paused a bit.”

Still, Cisco remains sunny about expanding its market share for data center gear. Robbins pointed to a new data center switching product that “saw slightly positive growth on orders” and that he’s “cautiously optimistic” about increased demand.

When an analyst on the earnings conference call asked Robbins whether Cisco may be developing a new product for the data center that could go beyond the company’s bread and butter networking products, Robbins was vague. But he hinted that something is in the works.

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And don’t expect the company’s blockbuster partnership with telecom equipment giant Ericsson to co-develop products and share patents to boost Cisco’s numbers yet. Robbins said the two companies have a couple of customer deals in the works, but he would “not translate that to a significant impact to any of the numbers.”

Cisco also reported that it cut 406 jobs in the end of its fiscal 2016, mostly related to the selling off of Cisco’s set-top box business and “workforce realignment.” Additional hires in the areas of security, cloud computing, and software “partially offset” that number, Cisco said in a statement.

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