The “Solid Quarter, Weak Guidance” Syndrome Back to Haunt Cisco Again!

Delivering sterling results that beat the market but issuing weak guidance for the next quarter is a standard practice with Cisco Systems.

Cisco CEO Chuck Robbins

Cisco CEO Chuck Robbins

CEO Chuck Robbins appears to have inherited this culture from his illustrious predecessor, Mr John Chambers, now Cisco’s Executive Chairman.

I have seen that happen quarter after quarter during my five-year stay (2005-2010) with Cisco.

The democratic traditions within Cisco had been such that, as a regular blogger in the company’s portal, I had held no punches back then with posts questioning the company’s motives. No questions asked!

Share Buyback: As Cisco had the practice of buying back shares (I think it still does), I had wondered, maybe naively, if the negative projections were aimed at letting the stock price slide so it can have some bargain pickings. But perhaps they were to stem any free-fall!

Even after I quit Cisco to join BT, I did not give up keeping tabs on the market as I held (and hold even now) Cisco shares.

Cisco Executive Chairman and former CEO John Chambers

Cisco Executive Chairman and former CEO John Chambers

In fiscal Q1 2015 (November 2014), too, Cisco had let the markets down with weak guidance after some strong results. By way of a Q1 assessment and Q2 outlook then, Mr Chambers pointed to capital budget cuts by service providers such as AT&T and weak sales in emerging markets as potential challenges. I blogged about it here!

One of the rare occasions when there was no downward guidance was in Q2 2015 (Feb. 2015) when Mr Chambers was upbeat about the company’s prospects. It made me think if one strong quarter was enough to signal good tidings for a company!

The history aside, per Cisco’s Q1 2016 results announced yesterday, revenue rose to $12.68 billion from $12.25 billion. Net income stood at 59 cents, higher than the 56 cents expected by analysts.

Lower orders due to macroeconomic factors and currency-exchange issues made Cisco warn of turbulence ahead! Not surprisingly, it sent the Cisco share price crashing.

In any case, that was a return to tradition for Cisco, with Mr Robbins following from where Mr Chambers left. That is the result of Cisco going with an internal candidate to succeed Mr Chambers. The culture sticks!

G Joslin Vethakumar

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