Cisco Systems warned its revenue would dive as much as 10% this quarter, and keep contracting until after the middle of 2014, as a backlash against US government spying contributes to plummeting demand in emerging markets such as China.
The hit comes after former US spy agency contractor Edward Snowden exposed widespread surveillance by the National Security Agency – in particular through internet data, much of which is transmitted via Cisco’s network equipment.
China’s Ministry of Public Security was reported in August to be on the verge of launching a probe into Cisco rivals including IBM, Oracle and EMC over security issues.
The scandal has also reverberated in other emerging markets the NSA is said to have spied on including Brazil, Mexico and India.
Cisco shares fell more than 10% in late trade after it also missed its revenue target for its fiscal first quarter just ended, where it saw a big drop in sales to telecom and cable service providers as well as in emerging markets.
CFO Frank Calderoni said Cisco was most affected by the political backlash in China, but noted that it was difficult to quantify how much of its revenue shortfall was due to politics versus macro-economic trends.
“Between economic and political issues that are occurring in emerging markets we had a significant impact,” Calderoni told Reuters in an interview.
Cisco said revenue in its top five emerging markets declined by 21%, led by a 30% drop in Russia, a 25% drop in Brazil and an 18% drop in both Mexico and China. One of Cisco’s biggest rivals is China’s Huawei, whose equipment has been shunned by the US due to government concerns about possible Chinese espionage.
Cisco said revenue grew only 2% to $12.09 billion in its fiscal first quarter ended October 26, from $11.88 billion in the year-ago quarter.
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