Cisco Systems forecast slower long-term revenue growth Thursday, citing conservative spending by its customers and uncertainty about the economy in some parts of the world.
The company predicted overall revenue growth between 3 percent and 6 percent, stepping back from a long-term forecast of 5 percent to 7 percent that it made in 2011. The new forecast is for a compound annual growth rate over the next three to five years, according to slides from a presentation by Executive Vice President and Chief Financial Officer Frank Calderone at Cisco’s annual financial analyst conference.
The move was foreshadowed by a grim quarterly forecast that Cisco issued Nov. 13 when it predicted revenue in the current quarter would fall between 8 percent and 10 percent from a year earlier. For that forecast, the company blamed falling demand in developing countries and transitions in some of its product lines. Some analysts on Cisco’s quarterly earnings call that day questioned the long-term revenue forecast that Cisco still had in place.
Cisco is the dominant vendor of networking gear and a growing player in enterprise servers, with its sights set on eventually becoming the top player in IT overall. With a global business generating nearly US$50 billion per year, it’s one of the major bellwethers of the IT industry.
In addition to macroeconomic uncertainty and cautious customers, Calderone listed the market dynamics of the service provider business as a factor in the reduced forecast. Last month, Chairman and CEO John Chambers told analysts that Cisco had missed its forecast for all of its top 10 developing markets by a wide margin. Economic uncertainty held back customer spending, he added.
Nearly all of the company’s revenue growth over the next few years will come from categories outside its core business of routing and switching, according to Calderone’s presentation Thursday. He expects data center products to lead in revenue gains, rising between 20 percent and 25 percent, followed by security, mobility and wireless and services. Cisco’s core business will range from flat to 1 percent growth, he said.
Cisco has made clear its plans to make more money from software, expand its services role and play a larger role in data center and cloud infrastructure. The rivals in its crosshairs are broad-based IT giants such as Hewlett-Packard and IBM, which themselves are encroaching on Cisco’s home turf as computing, storage and networking systems converge.
Calderone also gave some details on revenue in Cisco’s 2013 fiscal year, which ended July 27. For the year, revenue rose 8 percent in the Americas, 4 percent in Asia-Pacific and 1 percent in Europe, the Middle East and Africa. Data center revenue grew fastest, at 60 percent, followed by wireless at 31 percent. Cisco’s collaboration revenue fell 6 percent in the year and its next-generation network routing segment fell 1 percent.