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Despite reporting a steep decline in revenue and profit, Cisco sees possible sales opportunities in the coming months as companies adjust their IT spending in the aftermath of the financial blow delivered by the COVID-19 pandemic.
Cisco, a bellwether in corporate IT hardware demand, reported this week that revenue fell 8% year to year in the quarter ending in April, to $12 billion. Net income declined 9% to $2.8 billion, or 65 cents a share.
Cisco warned that the current quarter was unlikely to improve. The company predicted that revenue would fall between 8.5% and 11.5%.
Analysts were not surprised by the earnings report, given the pandemic's impact on the global economy. "We do expect a slow rebound, but spending on hardware was anemic through the COVID-19 crisis," said Glenn O'Donnell, an analyst at Forrester Research. "So, in short, Cisco did well relative to conditions, but it's not much to brag about."
During an earnings call with investors, Cisco CEO Chuck Robbins said companies that expect to have liquidity problems over the next three to six months have stopped spending.
But for other organizations, COVID-19 was a "wake-up call" and could help tech buyers get approval from senior executives to make network infrastructure more robust, Robbins said. U.S. health officials have warned that a second wave in the pandemic could strike in the fall.
"I do think customers are now stepping back and asking themselves, 'What do I need to do to harden my infrastructure and to better prepare my business for the next time something like this happens?'" Robbins said, according to a transcript of the call on the financial site Seeking Alpha.
Industries that could be among the first to pick up IT spending are higher education and healthcare, Robbins said. Both scrambled early in the pandemic to support online instruction and telehealth, respectively. In the future, IT departments could go back to make the initial, rushed deployments more solid.
On the other hand, the hospitality, leisure and travel industry could take longer. To help struggling industries, Cisco launched a $2.5 billion financing program last month that offered low monthly payments until 2021.
Over the next 60 days, Cisco expects to know better which industries are recovering faster, Robbins said.
Revenue down across most products
In the April quarter, overall product revenue fell 12% to $8.6 billion. The company's infrastructure platform business, which includes switches and routers, declined 15% to $6.4 billion. "Manufacturing challenges and component constraints" hit that unit the hardest, CFO Kelly Kramer said.
Chuck RobbinsCEO, Cisco
Lower revenue from unified communication products drove a 5% decline in Cisco's application business. Robbins said the UC drop was partly due to Cisco customers exceeding their licensed usage temporarily to support the sudden increase in people working from home. Cisco did not immediately charge the customers.
Also, many companies took advantage of Cisco's recently launched 90-day free trial program for its core collaboration platform, Webex.
In April, Webex recorded over 500 million meeting participants generating 25 billion meeting minutes, triple the volume in February.
Security and services were the only product categories that recorded an increase in revenue. Security rose 6% to $776 million, while services were up 5% to $3.4 billion.