Cisco’s Woes Seem Never-Ending

Data networking equipment company Cisco Systems, Inc. (CSCO) has reportedly lost a lawsuit challenging Microsoft Corporation (MSFT)’s acquisition of Skype, a freemium video, voice and text messaging provider.

Cisco, along with Skype's rival Messagenet S.p.A., had filed the suit on concerns that Microsoft’s acquisition of Skype would create a monopoly and harm competition. However, a judge has rejected Cisco’s plea, saying that the acquisition is compatible with the laws governing the European Union's internal markets and cannot be said to be restricting competition.

Cisco, which sells expensive video and teleconferencing equipment, understandably feels vulnerable from free services that threaten its businesses. It has been pushing for a common set of technology standards in video conferencing.

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Headwinds in Emerging Markets; Cisco Guides Lower

Cisco Systems, Inc. (CSCO), the leading provider of data networking equipment, disappointed investors with a relatively poor start to fiscal year (FY) 2014 when it announced its earnings on November 13. Lower than expected guidance for the next quarter caused its share price to plunge about 12.5% to $20.97 when trading opened, the day after the earnings release. Cisco reported revenues of $12.09 billion, which missed consensus estimates by 2.1% but were 1.8% higher compared to the same period last year. Revenues suffered mainly due to weak performance by the Service Provider Video segment and declining orders from emerging markets.
Earnings per share (EPS) came out to $0.53, beating estimates by two cents, 10% higher year-over-year (YoY) while gross margins of 63% were higher than consensus estimates of 61%-62%. The company’s financial results are similar to that of International Business Machines Corporation (IBM), which also missed top line estimates due to lackluster performance in emerging markets but beat EPS estimates.
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