For Cisco, The Environment Was Tougher Than Expected In Q2

Shares of Cisco Systems, Inc. CSCO plunged more than 7 percent after its earnings report confirmed the legacy tech company is operating in a tougher-than-expected environment.

Wunderlich's Matthew Robison maintains a Hold rating on Cisco's stock with an unchanged $30 price target as Cisco's "solid" fiscal third-quarter report is overshadowed by the difficult environment.

Uncertainty

Robison highlighted Cisco's collaboration segment which was "disproportionately affected" by the absence of an extra week on ratable services sales. At the same time, the security segment grew faster than every other segment, although the growth still fell short of expectations. In addition, the security segment may have suffered from the absence of federal spending, which is "stalled" given budget uncertainties in the coming year.

Declining Americas

Robison continued that the Americas unit suffered from weak demand from Mexico, which fell as much as 48 percent with much of the decline a function of service providers. Also, enterprise order growth declined 2 percent, which marks the first time it has done in a year.

Routing And Switching

Robison also noted that Cisco's routing segment was better-than-expected but still declined and the switching segment saw moderate growth. Overall order volume fell 4 percent from a year ago, and the company did caution that strength in the switching won't be seen this year.

Guidance

Finally, Cisco's guidance came in "moderately below" consensus estimates, especially the revenue line. The analyst now believes that Cisco's progress toward building a recurring revenue mix will be "gradual" which implies there is no immediate catalyst available to boost shares higher in the near term.

At time of publication, Cisco shares were down 8.19 percent at $31.05.

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