Hours after Cisco Systems’ stock price fell Thursday morning on concerns about its fiscal second quarter performance, CEO Chuck Robbins defended his firm, saying some customers are merely “tapping the brakes” on capital spending amid a swirling global storm of macro market factors.
Speaking at the Goldman Sachs Technology and Internet Conference 2020 in New York Thursday afternoon, Robbins noted that issues such as Brexit, trade wars with China, the impeachment trial of President Donald Trump, and most recently, coronavirus fears have combined to cause Cisco customers around the world to move more slowly with their spending.
“[Customer orders] are just taking a little bit longer to close, and our close rate is down, which just means our customers are just tapping the brakes. Everybody is just sort of monitoring things right now," Robbins said, adding later, "It's not a crisis, just a slight pause."
Cisco earlier this week reported fiscal second quarter earnings that included a 6% decline in orders that followed a 4% decline during the previous quarter. However, this should not have come as a surprise after the company late last year lowered its guidance for its second quarter, at that time citing many of the same factors that Robbins mentioned again Thursday-–with coronavirus being the new one that no one saw coming.
“I can’t believe the world we live in, and now a virus on top of everything else,” Robbins said.
But if Robbins sounded exasperated by the impact these macro issues are having on Cisco, he also said there are signs of hope.
Comparing Cisco’s order flow to the same period last year, Robbins told the Goldman Sachs audience, “Our customer pipeline is where it normally would be. We did an analysis of this quarter, our pipeline, the size of the deals, and if you go back a year ago it’s the same number.” He said that some "big deals that didn't book last quarter have already booked this quarter."
He added, regarding the second quarter performance, “Asia without China grew, Europe without the U.K. grew. The U.S. was the place that was weak.”
Robbins said the “green shoots” pointing toward future growth for Cisco include growing demand for the Catalyst 9000 switches, as well as early customer interest in the company’s 8000 Series routers and Silicon One offering. “We have now 30 routing franchise wins associated with 5G, and Wi-Fi 6 is beginning to ramp,” he said. “So, we’re doing a lot right now, but doing it against the backdrop of complicated times.”
Cisco also continues to be on track to have software represent about 30% of its revenue--and software and services combined represent about 50%--by the end of the current fiscal year.
While some macro market challenges may lessen as the current quarter chugs along, Robbins acknowledged that the full impact of the coronavirus on the market still remains unknown. Cisco cancelled its participation in Mobile World Congress just before the GSMA shut down the event earlier this week, and the Cisco chief said concerns about traveling internationally during the ongoing spread of the virus forced Cisco to cancel an upcoming Cisco Live! Event in Melbourne, Australia, as well as a large in-person meeting of Cisco executives that was due to take place next month.
Cisco had built softer market demand from China into its expectations for the second quarter and beyond, but Robbins said it’s still not clear how the coronavirus might affect aspects of its component supply chain that rely on factories in China. “In our supply chain, we’re still highly dependent on China, and we don’t know how that will play out.”