China tensions 'hurting US tech groups'

Political tensions with China and Russia mean that US tech companies are facing protracted pressure in what had been two of their most promising growth markets, the chief executive of Cisco Systems has warned.

"Until our countries get along better, we're not going to see an improvement," John Chambers said in an interview with the FT. Mr Chambers, who is due to step down in late July after 20 years at the helm, was speaking after the US networking company reported quarterly earnings showing a return to steady growth, driven mainly by sales at home.

A collapse in IT demand in emerging markets has been one of the biggest headwinds for Cisco and other US tech companies in the past two years, as volatile economic conditions and political rivalry have contributed to a sharp pullback in spending. While some commentators initially claimed Cisco was more exposed than others, it quickly became clear that all American IT companies faced the same pressures, Mr Chambers said.

The fall-off in demand coincided with a global backlash over revelations by former National Security Agency contractor Edward Snowden about US surveillance. The disclosures, which included a photograph of US agents appearing to open a box of Cisco equipment while it was being shipped to a customer, fed fears about the existence of "back doors" and other vulnerabilities in US IT equipment and led to renewed efforts in China to promote local IT champions.

On Wednesday, Cisco reported that orders for its internet routers, switches and other equipment in China fell by 20 per cent during the latest quarter, contributing to an overall decline of 6 per cent in Bric countries. Other emerging market countries saw growth of 6 per cent at the same time, it added. While Cisco's business in India is doing well and Brazil is suffering economically, political tensions are likely to continue to weigh on the outlook in China and Russia, Mr Chambers said.

Despite the warning, Mr Chambers capped his stint as the longest-serving CEO of a big Silicon Valley company with a bullish projection, claiming that Cisco would feed its growth by taking sales from competitors in the coming years. Taking a shot at rivals like Juniper Networks, VMware and Hewlett-Packard, he predicted that the networking company would report record earnings and revenues in his last quarter at the helm at a time when "almost all of our large peers are seeing negative year-on-year numbers."

Cisco indicated that it is looking to market share gains to help it turn around another troubled part of its operations, its sales to telecoms companies and other service providers. Orders from these customers fell by 7 per cent in the three months to the end of April, and Mr Chambers said that conditions in the market were unlikely to improve. However, he predicted that Cisco would end its declines in a "few quarters" by taking sales from other companies.

Reflecting the bullish rhetoric that became his trademark in 20 years that coincided with the rise of the internet, Mr Chambers pointed on Wednesday to Cisco's prediction in its 1997 annual report that the internet would "alter the fortunes of countries, companies and people". At the time, he added, "almost no one understood what we saw". The rise of the "internet of things" would lead to a similar, 20-year expansion that would have an even larger effect on the world as whole industries and cities digitised, he said.

Overall, Cisco's revenues grew by 5 per cent in the latest quarter, to $12.1bn, while pro-forma earnings per share rose by 6 per cent, to 54 cents.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation