Cisco CEO John Chambers.
Cisco Systems announced quarterly earnings and provided financial guidance that were better than analysts' expectations.
As a global provider of networking systems, Cisco serves as a valuable bellwether of economic activity.
In fact, when he was asked about regional performance during the earnings conference call, CEO John Chambers noted that he talked to CEOs in other industries and they all essentially had identical views of the global economy.
In a nutshell, the U.S. is good and growing, Europe is fragile but growing, and the emerging markets are just bad. Here's the transcript via SeekingAlpha.com (emphasis added):
I think the U.S. is sustainable, especially in commercial and enterprise with all the appropriate caveats. My few years at law school taught me on that. But I watch the pipeline, I watch the approach. Our U.S. Enterprise and Commercial are usually a very good indicator of GDP slowly increasing or GDP decreasing, and we saw a turn up in U.S. in Enterprise and Commercial back in summer of 2012, and if you bought [indiscernible], Ben, I think we all understand what would have happened. So, that feels good and you combine that with the CEOs I talked to, most of us feel 2.5%, 3% for the next nine months is very doable number. Not many things to do backflips on, but reasonable progress.
Europe is still a little bit fragile, but we did see stability across the north with some growth rates for a change and Europe in total was finally positive, not counting the emerging markets for us, and even stability in the South, looks like its occurring. Now I know they've still got structural issues there, and I know some of the countries are in transformation, have some tough decisions to make. But I think they are out of this downturn, slowly improving. And when I talked with our customers and the top financial people in New York which I did just a week ago, almost everybody else is beginning to see very similar trends. In fact, it almost was scary because when you describe the world just like I did earlier, including emerging markets and the challenges in Russia and Brazil, we could finish each other's sentences regardless of industry.
So I think Europe is coming back. Again, it's going to be slow and heavy lifting there, but they haven't addressed some of those structural issues, but more consistency; and even the South is starting to show stability on it in terms of direction. So, good about the U.S., good about Europe, don't feel very good about emerging markets. They are still very challenged, especially the BRICs.
During the recently completed quarter, Cisco said total U.S. orders increased by 7%, with orders to commercial and enterprise customers jumping 10% year over year. This as incredibly important indicator of business spending in IT hardware, a key component of the capital-expenditure boom that experts believe will ignite GDP and earnings growth.
Management noted that the overall product book-to-bill ratio was above "comfortably above 1." In other words, their pace of orders is stronger than their pace of sales, which is an indicator of future growth.
On the emerging markets, Chambers characterized it as the one of three areas of focus because the numbers are so ugly. Here's what he said about orders.
First, emerging markets; from a macroeconomic perspective, continue to be challenging. Orders in our emerging markets declined 7% with the BRICs plus Mexico down 13%.
As we said for several quarters, we expect these challenges to continue. The challenges we saw in Brazil down 27% and Russia down 28% are consistent with those we are hearing and seeing from our peers and customers, while China declined 8%, Mexico declined 3% and India declined 1%.
It's a mixed story. But ultimately, it's a valuable insight.
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