Cisco Earnings: Q2 Revenue Down 8 Percent

Another difficult quarter for Cisco Systems (CSCO) saw the networking vendor’s overall revenue decreased year over year by 8 percent and its profit decreased by more than half. But in typical Cisco fashion, the company’s chief executive is optimistic and expects the company to return to growth over the next few quarters.

Total revenue for the second quarter of fiscal year 2014 was $11.2 billion, down from $12.1 billion during the same quarter last year. John Chambers, long-serving chairman and CEO of Cisco, told media and shareholders in a conference call that Cisco plans to improve its revenue during the third quarter, but still expects a 6 percent to 8 percent decline year over year as the vendor executes on its plan to return to growth.

“Managing transitions has been a core foundation of our success for more than 30 years,” Chambers said during the earnings call. And the man is right. Sometimes it has seemed as though Chambers was peering into a crystal ball, foreseeing market transitions before they happened—and planning ahead to take advantage of them.

But software-defined networking (SDN), the latest market transition, didn’t appear in that crystal globe early enough for Cisco. Although Cisco does have SDN products, it came a little late to the show. It has definitely shown up to the party, but unfortunately for Cisco, it’s going to take the entire market time to capitalize on the SDN opportunity.

At the same time, Cisco and the rest of the industry felt a huge hit in emerging markets. A dramatic reduction in sales in nations including China, Russia and India has had an impact on Cisco’s revenue.

“To a large extent, that’s been due to currency fluctuations leading to customers cancelling or reducing orders,” said Charles King, principal analyst at Pund-IT. “But Tier 1 IT vendors, including Cisco, IBM and others, have long considered the BRIC countries a ray of hope that sadly went dark during recent quarters.”

Several revenue streams were down for Cisco, including service providers (which declined 12 percent in orders), switching (down 12 percent), wireless (down 4 percent), collaboration (down 7 percent). The Americas were down 5 percent in revenue year over year, and Chambers noted that U.S. service providers revenue was down 11 percent year over year.

On the plus side, where Cisco is up, it’s because of its channel partners, according to Chambers. Data center revenue grew by 10 percent year over year, security was up 17 percent (partially due to the SourceFire acquisition), and services revenue was up 3 percent. Its Meraki cloud platform saw a huge growth spike, growing by more than 100 percent year over year and experiencing a doubling of customers from first to second quarter.

Targets are still somewhat dismal for the third quarter of 2014, but Cisco’s channel and product strategies have served it well in the past. Despite setbacks, it seems likely Cisco will return to growth. It may not be this year, but give Chambers and company time.