CSCO Cisco Systems Inc

By Rachael King 

Even as Cisco Systems Inc. makes some gains in new strategic areas such as security, the company continues to battle weak customer spending in its core market for networking gear.

The Silicon Valley company said Wednesday second-quarter revenue fell 2.9% due to weak spending among service providers for switching systems that help move network traffic. The company has now posted revenue declines for five straight quarters.

Shares of Cisco fell 1% after hours.

Cisco said its profit for the quarter ended Jan. 28 fell 25% to $2.35 billion, or 47 cents a share. Excluding charges, adjusted earnings per share were 57 cents, compared with an analysts' consensus estimate of 56 cents a share, according to a Thomson Reuters poll of analysts.

The San Jose, Calif., company's results often reflect changes in technology spending patterns ahead of peers.

Cisco's switching revenue fell 5%, and routing revenue dropped 10%. Meanwhile, wireless revenue rose 3%, collaboration revenue climbed 4% and security revenue jumped 14%.

Cisco Chief Executive Chuck Robbins said in prepared remarks that he was pleased with "continued customer momentum as we help them drive security, automation and intelligence across the network and into the cloud."

Mr. Robbins, who became CEO in 2015, is trying to chart a future for Cisco in software for security and collaboration as the company's main hardware business has come under pressure from competitors over the past few years.

To that end, Cisco said in January it would purchase software firm AppDynamics Inc. for $3.7 billion. That deal, which help bolster Cisco's software offerings for large business customers, is expected to close during the third quarter.

Even as the company continues to see healthy growth in security software revenue, it is facing increasing competition in its core switching business. In particular some large customers are turning to competitors such as Arista Networks Inc. or inexpensive commodity-style switching systems from vendors such as Taiwan's Quanta Computer Inc.

In particular, the highest-growth segment in the switching market is the nearly $8 billion that cloud providers and telecom service providers spend annually on network switching gear, said Rohit Mehra, an analyst who leads IDC's networking practice.

In many cases, larger cloud providers and telecom service providers are looking for hardware that can be easily customized, automated and managed remotely, Mr. Mehra said. "This is where Cisco is having challenges competing," he said, adding that Cisco has made progress in adapting its products.

Write to Rachael King at rachael.king@wsj.com

(END) Dow Jones Newswires

February 15, 2017 16:45 ET (21:45 GMT)

Cisco Systems (NASDAQ:CSCO)
Historical Stock Chart
From Mar 2024 to Apr 2024

Cisco Systems (NASDAQ:CSCO)
Historical Stock Chart
From Apr 2023 to Apr 2024