Earnings bolster Cisco, but raise concerns for broader IT spending

Thu Feb 11, 2016 3:36pm EST
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By Sarah McBride

SAN FRANCISCO (Reuters) - Networking giant Cisco Systems Inc reported it is weathering a global slowdown in information-technology spending, but signs potential customers are putting some projects on hold exacerbated concerns about broader IT growth.

Cisco shares rose 10 percent on Thursday, bucking the overall market after it set a profit target in line with Wall Street expectations despite the weaker spending it noted around the world by businesses. The company also cut targets three months ago, moderating Wall Street expectations.

Cisco Chief Executive Chuck Robbins on Wednesday told analysts that customers in January “paused a bit” as they evaluated the economy. Spending on key projects continued while more optional ones were put on hold.

Analysts took that as a bad sign for some technology companies.

“This was really a litmus test for all of IT spending,” said Sun Trust analyst Inder Singh about Cisco’s comments. “When they speak, and they talk about a slowdown, and a deceleration, usually it affects the broader market.” Cisco's guidance was "prescient in terms of affecting other companies," he added.

Cisco reported weakness in data centers and switching. Some analysts saw potential trouble for other data-center products such as networking, servers, storage, and virtualization.

Shares in storage company EMC were down 1 percent on Thursday. Shares of IBM, which makes servers and sells other related services, were down 2 percent. HP Enterprises, which sells server products, fell 5 percent in a generally weak market.

Conversely, Cisco said demand for security and next-generation data centers, which rely more heavily on software than traditional data centers, withstood the downturn. Shares of Arista Networks, which makes next-generation data center switches, showed slight gains Thursday. The company reports earnings next week.   Continued...

The Cisco Systems logo is seen as part of a display at the Microsoft Ignite technology conference in Chicago, Illinois, May 4, 2015. REUTERS/Jim Young