Cisco Service Provider Division Takes Hit in Q1

Set-Top Box Sales Drop 20%

Cisco Systems missed analyst expectations in a first quarter that saw a significant decrease in set-top box sales and a general decline in its service provider business segment. And the forecast for its overall  fiscal fourth quarter isn’t looking so hot either, causing Cisco shares to tumble more than 10% in after-hours trading Wednesday.

Service provider video revenues tallied $987 million, down 14% in the period, which ended October 26. Cisco’s declining set-top business, brought on by more cloud-based video delivery to tablets, consoles and other IP-connected devices that virtualize the traditional set-top box functions, shouldered a good portion of the blame.

Cisco’s set-top business, which had an annual order rate of over $2.6 billion, dropped over 20% in the third quarter “as we evolved our business to the cloud and hold to our strategy to walk away from low profit deals,” Cisco chairman and CEO John Chambers said on Wednesday’s earnings call. That strategy “has a positive impact on margins that comes with some revenue pain,” he said.

Video, Chambers stressed, is “one of the top priorities of all of our service provider customers and we are committed to the business.”

Overall, Cisco posted revenue of $12.09 billion, up 2%, but below the $12.34 billion expected by Wall Street analysts. Profits dropped to 37 cents per share, down from 39 cents a year ago.

Cisco also predicted that revenues would drop between 8% to 10% in the second fiscal quarter, news that caused shares to slide more than 10 percent in after-hours trading Wednesday. At last check, Cisco shares were trading at $21.52, down $2.48.

In August, Cisco announced a reorganization that would result in the elimination of about 4,000 jobs, or 5% of the company’s global workforce. Cisco started to notify affected employees in early October.

Among recent structural moves, Cisco divided its service provider business into two units, appointing Jesper Anderson to run the SP Video Software and Solutions business, and naming former Motorola Mobility exec Joe Cozzolino to head up its SP Video Infrastructure operations.