MarketWatch First Take: Cisco’s customers are still on ‘pause’ amid coronavirus scare and layoffs

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After confirming a slowdown in tech spending last quarter, Cisco Systems Inc. did not have better news for investors on Wednesday, with executives confirming that the spending “pause” has continued.

Cisco CSCO, +1.63%  reported earnings that were slightly ahead of estimates, but overall revenue was down 4% from a year ago and the company provided a lackluster forecast of no growth for the third quarter along with plans for layoffs. Those results and Chief Executive Chuck Robbins’s downcast color on the spending environment sent Cisco’s shares down 4.7% in after-hours trading.

“While we continue to experience some pause in customer spending related to the uncertainty in the global macro environment, our long-term growth opportunities remain unchanged,” Robbins told analysts on a conference call.

Robbins reiterated that new technologies such as the move to 5G cellular networks, 400-gigabit Ethernet, WiFi 6 and the cloud are big growth drivers and opportunities for the networking giant. But he said customers are still cautious about some of the tech transitions, and the COVID-19 coronavirus scare that is causing manufacturing shutdowns and halting travel across the globe is another new factor.

Full earnings coverage: Cisco stock falls as results slightly exceed estimates

In a brief interview with MarketWatch after the analyst call, Chief Financial Officer Kelly Kramer said that the company is always impacted by the overall business sentiment, but that 5G technology would help the next fiscal year “massively.”

Earlier this week, Cisco was one of many tech and telecom giants to cancel its attendance at the upcoming Mobile World Congress in Barcelona amid fears of the disease caused by coronavirus. In an unprecedented move, the organizers cancelled the huge trade show Wednesday.

“When I speak to the customers, they’re still fully planning on moving forward. They’re just a little cautious in trying to see what’s going on. We obviously have the virus now, but we’ll see how it plays out,” Robbins said. “But overall, I don’t think it’s deep, and we expect that, given some of this uncertainty has now dissipated, notwithstanding what we see obviously from the virus, that hopefully we’ll see our customers pick up again.”

Kramer did not seem too worried about the impact of the coronavirus on Cisco’s results overall, noting the percentage of sales to China is 2%, and has “declined dramatically over the years.”

Cisco also said it would have a $300 million restructuring charge that would include severance and other costs, with $150 million recognized in the current quarter. A Cisco spokesman declined to give the number of job cuts. Cisco typically does smaller job cuts on a rolling basis, after years of one big summer layoff.

Investors — already discouraged by Cisco’s 6% drop in product revenue — were not enthusiastic about the additional clouds that the coronavirus is adding. They will have to look for Cisco‘s potential upside further down the road, when the new technologies are expected to start taking hold.

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