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Cisco earnings show slowdown in data center tech buying

Besides higher revenue and profits, Cisco earnings also showed that volatility in the global markets had caused tech buyers to reduce spending in the data center.

Enterprise tech buying slowed at the tail end of Cisco's recently completed second fiscal quarter, as skittish companies pulled back on spending in response to volatility in financial markets.

Enterprises halted spending on some products related to switching and the data center, which includes the company's Unified Computing System that combines computing, storage and networking in a single system, Cisco executives told financials analysts this week during the Cisco earnings call. Revenues from switching and the company's data center group fell 4% and 3%, respectively, year over year in the quarter ended Jan. 23.

For the current quarter, Cisco forecasted revenue growth between 1% and 4%. Because of the shaky global economy, Cisco's projection was "prudent," said CFO Kelly Kramer. For the last quarter, revenue increased 2% to $11.9 billion, while net income rose 31% to $3.1 billion, or 62 cents a share.

You see customers say, 'I just want to wait to see what's going on.'
Chuck RobbinsCEO at Cisco

During the first month of the year, wild swings in the Chinese stock market spooked U.S. and European investors, driving down Western markets. Year to date, the Dow Jones industrial average has fallen almost 9%, according to Bloomberg.

As a result, Cisco customers "paused a bit" on making some purchases, Cisco CEO Chuck Robbins said. "You see customers say, 'I just want to wait to see what's going on.'"

Customers halted spending on noncritical projects, such as campus switch upgrades that had been consistently on the rise over the last few quarters, Robbins said. "We saw customers say, 'Hey, our infrastructure is working, so we're going to just hold on that for some period of time.'"

Enterprise focus on security affects Cisco earnings

Enterprise customers continued spending in areas labeled as essential to their businesses, including security and Cisco's software-defined networking platform, called Application Centric Infrastructure, Robbins said. Revenue from the latter grew 100% in the quarter. Cisco's SDN business overall has a run rate of $2 billion for the current fiscal year.

"I don't see any fundamental issues relative to the enterprise portfolio, or things like that," Robbins said. "I think that [the spending slowdown] was largely a prioritization effort that we saw within our customer base on the enterprise side."

Cisco-Ericsson partnership

Robbins provided no details on the products Cisco is building with Ericsson AB. In November, the companies announced they would work together on a broad set of technologies related to data centers, cloud computing, mobility and infrastructure management.

"We have begun to close transactions together," Robbins said. "[But] I would not translate that to a significant impact to any of the numbers we put out there today."

The companies planned to demonstrate jointly developed technology at the Mobile World Congress in Barcelona Feb. 22 to 25, Robbins said. "That partnership is going probably as well as we thought it would be at this point, and I think you'll really see the acceleration over the next 12 months."

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