Cisco's low outlook fears a decline in technology consumption, but 5G may offer light at the end of the tunnel

Cisco Systems Inc.'s revenues were marred by a large double-digit decline in network vendor sales, and the situation is not expected to improve soon.


CSCO, -4.00%

reported fourth-quarter fiscal results slightly better than expected, with sales of $ 13.4 billion and adjusted earnings of 83 cents per share. These results were exacerbated by a 21% fall in the company's sales to service providers, the largest fall in the just ended financial year, and a 2% decline in the corporate business, the only decline in the sector all year.

Cisco also provided lukewarm guidance for the next quarter, helping to pull stocks down 7.7% in demand trading, and CFO Kelly Kramer pointed directly to the challenges in the service provider sector for that projection.

"Besides service providers, the rest of the business is up by one-digit numbers," Kramer said in an interview with MarketWatch after revenue.

Kramer explained that network providers are currently focusing on the consumer-facing element of their 5G rollout, i.e. the radio parts of the mobile phone towers, in the transition to the next generation of mobile phone service.

“They have to build massive infrastructure. They start with the radio part, which we don't even sell. When they start building the core networks, it will take up business. "

Cisco's weak prognosis has emerged in recent fears that technology spending is slowing, especially for hardware companies. The results also suggest a potential cooling off: Cisco's business operations were down 2%, up 9% in the third quarter, 1[ads1]1% in the second, and 15% in the first quarter. And CEO Chuck Robbins commented on a change in customer activity during the quarter that could be worrying.

"We saw some small indications of some macro offsets in July that we didn't see during the previous quarter," Robbins told analysts.

"We saw some weakness in the UK in business and then, frankly, in the US," admitted Robbins.

Weakness in China contributed to the decline in business, Robbins added. Cisco is not disinfected, or asked at all, to bid on contracts with major carriers in China, Kramer said. Cisco reported a 25% decline in the company's China operations in the quarter, but it accounts for only about 3% of Cisco's revenue. As far as the impact of customs duties in China, Cisco has moved some hardware production to other countries, offsetting some of the potential impact of software, as Kramer explained to MarketWatch earlier.

Investors are right to be nervous about technology consumption as the China-US trade war continues. Cisco did not release fears of a macroeconomic slowdown on Wednesday, but pointed to potential help along the way as the 5G major transition turns to equipment.

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