US Spying Fiasco Hurting Revenue: Cisco

Cisco Systems, Inc. (CSCO) has given cautious outlook for the current quarter saying that the revenue may drop as much as 10% and will continue to drop until the middle of 2014 citing declining demands from emerging markets like China as a response to the US government spying case, says a report from Reuters.

NSA Surveillance impacts primarily

Cisco saw its demand tumble after the recent Edward Snowden fiasco, where National security agency was accused of conducting widespread surveillance through internet data, majority of which is transmitted through Cisco network equipment.

In August, China’s ministry of Public security indicated an investigation into the Cisco’s competitors IBM Corp, Oracle Corp and EMC Corp over security issues. NSA has also been accused of spying on other countries including Brazil, Mexico and India.

Shares of Cisco Systems took a dive of over 10% in late trade after it posted revenue below expectations, in the first fiscal quarter. Sales to telecom and cable service providers also declined in the emerging markets.

Chief Financial Officer Frank Calderoni said that political repercussion in China has affected the company most, but it is not possible to calculate as to how much of the revenue decline was caused due to political backlash.

“Between economic and political issues that are occurring in emerging markets we had a significant impact,” Calderoni told Reuters.

Revenue down in emerging markets

Cisco Systems stated that revenue in its five emerging markets came down 21% where Russia declined 30%, Brazil dropped 25%, Mexico and China dropped 18% each. Huawei is one of the biggest rivals of Cisco in China, but its service was banned by the United States following the concerns over Chinese spying.

Cisco stated that revenue in service has come down 13% due to the delay in the launch of new routers along with the decline in the sales of the set top boxes due to shunning of least profitable contracts.

Cisco has been a bellwether of the technology industry because of broader customer base. Rival IBM replaced the heads of growth markets after it witnessed a sharp decline in the quarterly hardware sales in China.