Signs of global weakness of NASDAQ: CSCO and NYSE: NOK

February 12, 2016 11:48 AM4 commentsViews: 33504

Signs of global weakness of NASDAQ: CSCO and NYSE: NOKTwo big technology companies this week provided more evidence that the global economy is slowing and possibly even headed toward a recession. Executives at Cisco Systems (CSCO) and Nokia (), as they reported their most recent quarterly results, both warned of a major slowdown in orders from their corporate customers around the world.

The observations were just the latest pieces of evidence that the global economy is struggling, as data from China, Russia and other areas has revealed a multitude of problems that have scared investors in 2016. Federal Reserve Chair Janet Yellen on Thursday said economic problems around the world could hit growth in the United States later this year. The Standard & Poor’s 500 Index was down around 2% on Thursday and has lost 11% so far this year.

Cisco CEO Chuck Robbins said orders for his company’s networking gear and data center equipment slowed starting in January, as tumbling stock markets and other signs of slowing economic growth spooked customers.

“When there’s uncertainty in the market, we see enterprise customers, and they just basically say hey, look, let’s just – let’s wait, let’s see what’s going to happen,” Robbins said on a call with analysts on Wednesday. “They may say let’s wait a week. They may say let’s wait a couple weeks. And when you’re in the last three weeks of your quarter, those kinds of decisions have an impact.”

Despite the customer concerns, Cisco reported sales of $11.9 billion for its quarter ended Jan. 23, virtually unchanged from the same three-month period a year earlier. Net income increased 31% to $3.1 billion as the company was able to raise its gross profit margin and cut expenses. Cisco expects to see revenue increase 1% to 4% in the next quarter excluding sales from a video unit it sold in November. Cisco shares were a rare winner on Thursday, gaining 10%.

Rajeev Suri, president and CEO of Nokia, said he also saw customers delaying decisions on major capital spending, or capex, projects due to the current volatile economic climate. “The first quarter, in particular, looks quite challenging as customers assess their CAPEX plans in light of increasing macro-economic uncertainty,” Suri said in a statement accompanying Nokia’s earnings announcement on Thursday.

To be sure, corporate executives sometimes try to avoid admitting things are going wrong at their own companies by putting the blame on larger economic forces outside of their control. Cisco faces challenges as its customers shift from buying networking equipment to leasing cloud computing services from companies like Amazon (AMZN), for example. But the company maintains shrinking sales in that area were due to the larger economic uncertainly, not the disruptive impact of cloud computing.

Not all analysts agreed. “Our long-term concerns remain that the company is increasingly challenged,” Credit Suisse analyst Kulbinder Garcha noted after Cisco released its results.


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