The market always looks to Cisco Systems, Inc. (NASDAQ:CSCO)’ results because they are usually a good indicator of where technology is headed. The latest earnings report proved no different. Cisco Systems, Inc. (NASDAQ:CSCO) discussed a slow but ongoing economic recovery that contains some notable differences in growth rates from various regions. It seems that different geographies and end markets are taking turns to outperform for one period and then disappoint in the next. It looks like the tech markets are set for more uncertainty in the second half.
Cisco reports mixed regional growth…
Cisco Systems, Inc. (NASDAQ:CSCO)’s 6% revenue growth in the fourth quarter was in line with its long-term targeted aim of 5% to 7%, so investors could be easily forgiven for thinking that it was just another quarter. However, the underlying story was the relative performance of each region.
Revenue from the Americas grew 7%, and Europe, the Middle East and Africa (EMEA) grew an impressive 12%, but this quarter Asia-Pacific, Japan and China (APJC) actually fell 3%. Moreover, Cisco Systems, Inc. (NASDAQ:CSCO) saw noticeably varied performance within the 8% growth recorded in its emerging markets. India and Mexico recorded double-digit gains, while the Brazil and Russia were flat with China down 6 %.
…and mixed industry growth too
It wasn’t just a regional issue. In terms of orders by customer, enterprise declined 2% (with particular weakness in EMEA) although commercial grew 5%, and the global public sector grew 6%. The latter is notable because three quarters saw weakness in the public sector. In addition, service-provider orders grew 6%, and this comes after whole swathes of the tech industry had reported weakness in service-provider spending in the first quarter of 2013.
Furthermore, there was even some significant variability within Cisco’s sales. Starting with its core sales, switching had a good quarter as new products were released, but routing had another weak set of results. There was also some bad news with services revenue only growing at 5.6% when Cisco Systems, Inc. (NASDAQ:CSCO) plans for 9% to 11% for the next three-to-five years.
Its core activities of switching, routing, and services typically make up 68% to 69% of Cisco’s total sales.
Source: Company accounts
What it all means to the industry
Investors should expect more unpredictability in the tech market. Oracle Corporation (NASDAQ:ORCL)’s recent results were also disappointing. In common with Cisco, it cited US and EMEA license growth in line with expectations, but saw weaker conditions in China and Brazil. The variance in emerging market performance is worrying because a lot of tech companies spent last year relying on the BRICs for their growth prospects.
Indeed, International Business Machines Corp. (NYSE:IBM) reported an overall revenue decline of 3% in its results in mid-July with growth in the BRICs being flat. International Business Machines Corp. (NYSE:IBM)’s results presaged what Oracle Corporation (NASDAQ:ORCL) and Cisco Systems, Inc. (NASDAQ:CSCO) would say about regional growth, and it also gave a cautious outlook on Brazil and China. On a more positive note, the one key theme from all three earnings reports is that the US enterprise sector is outperforming.
However, investors need to be cautious over expecting too much from the government sector. Austerity measures and sovereign debt issues are not going away anytime soon, and order growth could continue to be lumpy in future quarters.
