Cisco's Chambers: Service provider market volatility continues as orders decline 7%

The service provider segment continues to be a challenging environment for Cisco Systems, according to CEO John Chambers, who is stepping down as CEO in July after 20 years.

Speaking to investors during its fiscal third-quarter earnings call, Chambers said that it is seeing slower service provider spending patterns in the United States and across other global markets.

Orders in the service provider sector were down 7 percent from the same period a year ago. Cisco attributes the decline in orders to service providers being more conservative with capex spending and overall industry consolidation. Service provider sales in the United States declined 17 percent during the quarter. 

"The volatility in service provider and emerging markets we have discussed in prior quarters continues," said Chambers during the earnings call, according to a Seeking Alpha transcript. "Our service provider business remains challenged both globally and in the U.S. Service provider orders globally decreased 7 percent and U.S. service provider orders declined 17 percent."

Despite the losses, Chambers said the "organizational changes we have made in our global service provider organization are working, and we are very focused on growing our share of wallet."

One of the big service provider win highlights during the quarter was with Verizon, which chose Cisco and Ciena as its two metro optical vendors of choice. What's different about this latest deployment is that it's going to serve as a Greenfield overlay to the telco's existing metro transport network.

"During the quarter, Verizon announced it is moving to a next-generation 100-gig metro network in the U.S. and that it will test and deploy Cisco networking convergence systems, the NCS," Chambers said. "No one thought we were even in this game. Our ability to win the deal was entirely driven by our new generation in terms of engineering organization, our ability to deliver integrated architectures, our agility with engineering to realign resources quickly, the speed of our innovation, and our unique ability to partner with our customer to shape their future and the future of the industry."

Among the strongest growing sections of the company was the data center segment, where revenues rose 21 percent. The company saw similar gains in its switches and routers product line, which rose 6 and 4 percent, respectively.

"We had a solid quarter in NGN routing, which grew 4 percent. We saw solid performance in high-end routing again this quarter, up 5 percent, supported by strong momentum in our new product introductions, including the CRS-X and NCS, which were both up over 200 percent. This growth is a direct result of the transition we drove in our core routing over the last several years."

From a regional perspective, Cisco reported strong growth in the Americas region with $7.2 billion in revenue, while EMEA was $3.12 billion and Asia-Pacific declined slightly year-over-year to $1.76 billion.

However, emerging market orders were flat, with the Brazil, Russia, India and China (BRIC), plus Mexico, down 6 percent, while the remaining emerging markets grew 6 percent.

Looking toward the fiscal fourth quarter, the company expects to see revenue growth in the range of 1 to 3 percent and non-GAAP earnings per share in the range of 55 to 57 cents.

Cisco's overall revenues were $12.1 billion, up 5.1 percent year-over-year.

Shares of Cisco closed at $29.05, down 30 cents or 1.02 percent, at the end of Thursday afternoon trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- Reuters has this article
- see the Seeking Alpha transcript

Special Report: Wireline telecom earnings in the first quarter of 2015

Related articles:
Verizon taps Ciena, Cisco to build its 100G U.S. metro network
Cisco taps Robbins to take over CEO reins from Chambers
Cisco CEO Chambers to step down after 20 years, will be replaced by company exec Chuck Robbins
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