Brexit Takes a Chunk Out of Cisco’s Earnings, as Headwinds Blow

“We are seeing a slowdown because of Brexit”

Cisco’s earnings fell flat this week, with the networking specialist posting a four percent fall in revenues year-on-year to $12 billion, while its infrastructure platforms and applications segments both fell eight percent.

MP Securities analyst Erik Suppiger told MarketWatch he was “surprised” by an overall 6 percent drop in Cisco’s orders year-over-year, the worst he said that he’s seen from the company since the 2008-9 recession. Net income meanwhile dropped just over $500 million to $5.8 billion.

In Europe, Cisco’s CFO Kelly Kramer was clear about the cause.

She told analysts on the company’s earnings call: “The biggest driver [of the decline in earnings] when I look at Europe was really the UK.

“We are seeing a slowdown because of Brexit and we did see it in the public sector significantly, which is always a big growth driver for the UK for us. So UK both enterprise and public sector has slowed down for us, which drove Europe. Europe would have been up 2 points without the UK.”

CEO Chuck Robbins added: “Like many in our industry, we are seeing longer decision-making cycles across our customer segments for a variety of reasons including macro uncertainty as well as unique geographical issues.

“The good news is once this uncertainty passes… we expect to see spending recover as technology continues to be at the heart of all they do.”

He added: “Clearly late in the quarter [on issues] that were creating some of the uncertainty like Brexit, we got closer to resolution.”

Revenue from China meanwhile was down again over 30 percent on trade tensions and an export ban. Robbins added: “It’s still only about 2 percent of our total business, but it still hurts the overall [mix]”.

The company played up the longer term outlook, saying it is making progress on several key metrics including a shift to software subscriptions, with 72 percent of its software now sold as a subscription.

Robbins said: “While we still have a lot more work to do, I firmly believe we have a tremendous opportunity ahead of us. The long-term secular growth trends of 5G, Wi-Fi 6, 400 gig, and the shift to the cloud remain…”

“This is a multiyear transformation.

“The broad adoption of multi-cloud and modern application environments is changing how the world’s largest networks are built, operated, and secured and Cisco is at the center of this transition.”