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Service provider segment disappoints in Cisco's Q2

Thu, 02/13/2014 - 12:47pm
Brian Santo

Cisco Systems reported that weaker revenue and special charges weighed down its second-quarter profitability. The company earned $1.43 billion for the quarter, down from $3.14 billion a year earlier.

The company is trying to reposition itself as a vital facilitator of the so-called Internet of Everything. The thing is, as Cisco CEO John Chambers pointed out, the Internet of Everything is still a set of incipient trends that the industry is still only just talking about.

“The Internet of Everything has moved from an interesting concept to a business imperative driving opportunities across every major vertical,” Chambers said during his conference call with analysts. “It was the central conversations at the Consumer Electronics Show and the World Economic Forum, the last couple months with CEOs, industry and country leaders globally. Anyone walking away from these events should characterize this year as the tipping point.”

In other words: bear with us, there isn’t a definable market yet.

Cisco has been signaling tepid support for its cable industry product line for some time, and this time around, Chambers called out the poor results in that segement.

“Service provider orders declined 12 percent year-over-year, SP Video orders including the set-top boxes were down 20 percent. Service provider orders, excluding SP Video, were down 7 percent. Product transitions and core routing, along with the emerging markets weakness, also negatively impacted service provider results.”

Earlier in his remarks, Chambers dropped a line with no reference to any specific products, but which in light of the above comments could be interpreted as weak support for the customer premise equipment (CPE) in the company’s service provider portfolio: “Our transition is from selling boxes like most of our peers to selling business outcomes.”

Asked specifically about the make-up of Cisco’s service provider portfolio, Chambers responded, “we basically are again going with an architectural approach. We are literally saying how do you influence the key issues that are most important to the service provider from mobility to video, to cloud, to speed of services delivery, so reducing OpEx and CapEx and say how you approach these with an architectural approach. So I think this will be an industry where architectures will win and I think we are very well positioned versus our key traditional IT players and future challenges.”

Later, after talking about Cisco’s opportunities in the wireless market and about the company’s positioning for the Internet of Everything, Chambers insisted Cisco continues to be interested in video specifically, and continuing to have some presence in the service provider market in general.

“If you are in service providers and of course we look at the analysis as we go forward,” Chambers said. “We are very much committed to the video side of market, because video mobile is the number one application area that they really see differentiation and two thirds of the load on mobile devices and just a year will be video, so you have to be in these areas where you can tie up together.”

Cisco's Q2 results included a $655 million charge to address issues with memory components, and the prior quarter's results include a $926 million tax benefit. After adjusting for those and other special items in both periods, the company earned 47 cents per share, compared with 51 cents per share last year.

The company said its revenue fell nearly 8 percent to $11.16 billion from $12.1 billion.

Analysts polled by FactSet were anticipating earnings of 46 cents per share on revenue of $11.04 billion.

Cisco on Tuesday also raised its dividend 12 percent to 19 cents per share, up from 17 cents. The new dividend will be paid on April 23 to shareholders of record as of April 3.

Shares of Cisco fell 74 cents, a 3.2 percent decline, to $22.11 in after-hours trading. Its shares closed regular trading at $22.85, up roughly 9 percent from this time last year.

The Associated Press contributed to this story.

Quotes from Cisco’s call with analysts were from the transcript of the call provided by Seeking Alpha.

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