Networking equipment vendor Cisco says its future performance is uncertain as governments prepare to cut their IT spend.
That admission took the shine off what was an otherwise strong set of financial results for the first quarter of its financial year.
In the three-month period ending 30 October, Cisco recorded a 19% increase in sales to $10.75 billion alongside an 8% uptick in net income to $1.8 billion.
However, a dismal full-year projection, partly based on cutbacks in government IT spending and weakness in its service provider customers, dismayed investors. In the immediate aftermath of the results being published, Cisco’s share price plummeted by 14%.
The company says revenue will grow between 3% and 5% in the coming quarter and 9% to 12% for the fiscal year. Wall Street analysts had predicted 13% and 13.1%, respectively.
Following the results announcement, CEO John Chambers said the company was facing "unusual uncertainty", highlighting austerity measures among public sector organisations, particularly those in Europe.
"We are obviously not projecting growth as fast as we would like over the next several quarters and [this] reflects in our opinion the reality in public sector spending, some challenges in parts of our service provider market and one or two areas we should improve are execution," Chambers told financial analysts during a conference call.
Cisco disclosed weaker performances in some areas of its broad product portfolio. Revenues derived from its security division, for example, fell by 2% year-on-year. Other business units performed better: switches were up 25% to $3.6 billion, routing up 13% to $1.8 billion, and data centre products were up 59%.
Bill Choi, an analyst at Jefferies & Company, suggested that Cisco’s outlook raised concerns about the current health of the IT industry. "The big question is whether this is Cisco specific or whether there is something about the market that we should be more concerned about."