Cisco reported a quarter in line with analyst estimates, but the company was cautious about its next quarter and its guidance in year-on-year growth would suggest that the next quarter could be flat relative to the current one.
The numbers disappointed investors, who jumped off the stock in after-hours trading, but it’s not a surprise to us. Recall that our spring survey showed that enterprises had suddenly become cautious about tech spending, and that the second half was likely to see a slow-roll on the critical project budgets. We think Cisco is showing that it’s not immune to systemic factors, but we also saw very strong strategic leadership growth ratings for Cisco in the last survey. We think the company’s market share will increase over the next two years and that the caution it expressed about the quarter might still prove unnecessary.
The next month will tell the tale — back-to-school spending is a leading indicator for the whole fall period. An interesting tech point was that switching growth was nearly double routing growth for Cisco, and the switching growth rate matched Cisco’s advanced products. We think this shows that Ethernet is becoming the big focus in both carrier and enterprise segments, which also matches our survey results.