MarketWatch First Take: Cisco stares down geopolitical unrest and cloud downturn, and stock emerges higher

Throughout this earnings season, stocks and sentiment have swung on tech companies’ complaints about softening orders from customers worried about geopolitical unrest and a slowing of the market for data-center equipment.

Cisco Systems Inc. CSCO, -0.81%  , though, appears just fine.

The networking giant, which is seen among some investors as a barometer for the tech ecosystem and global market, reported strong earnings Wednesday afternoon that pushed shares higher. That stock gain almost doubled, though, after Chief Executive Chuck Robbins gave a forceful comment about macroeconomic uncertainty in a conference call that belied all the doubts heading into the report.

“I’ve been amazed at the resilience that we have seen around the world in light of all the macro environment and the geopolitical dynamics, whether it’s a shutdown, or it’s U.S.-China trade, or it’s Brexit, or it’s stress in Italy, or it’s political unrest in certain emerging countries,” Robbins said.

“I haven’t seen any general difference over the last 90 days in the discussions we’ve had, with the exception of talking to a customer who has very high exposure to the Chinese market. But even then, they talk about the impact of the geopolitical situation, but they never connect it to any sort of spending shift,” Robbins continued. “Some of them may do that, but I’m not having those conversations. Everybody seems to be moving in the same place they were three, six months ago.”

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After-hours gains of a bit more than 2% shot to more than 4% after Robbins made those comments. In a subsequent interview with MarketWatch, Chief Financial Officer Kelly Kramer said that it was a “sigh of relief” from investors who were concerned that the negative headlines were also affecting Cisco.

“People were assuming that we would be struggling more because of the geopolitical environment,” she said.

Beyond concerns about spending in China and economic unrest, the big worry in technology is a potential slowdown in the cloud buildout, as chip companies have reported slowing revenue growth for data-center sales. While Kramer admitted that Cisco’s sales of servers for data centers declined from last year, she noted that other products, such as switches and routers, sold into the cloud market were doing fine, and server sales increased in the Americas, Cisco’s largest market for that product.

Robbins joked about it suddenly being a good thing that Cisco doesn’t have as much exposure to the cloud market. Kramer, though, was more specific, crediting Cisco’s broad customer base and noting that many of the companies that have struggled focus on just one end of the market, notably big cloud purveyors like Amazon.com Inc. AMZN, +0.12%  , Microsoft Corp. MSFT, -0.07%  and Alphabet Inc. GOOGL, +0.09% GOOG, -0.11%  in the U.S., and Alibaba Group Holding Ltd. BABA, +0.41%  and others in China.

Opinion: Nvidia is latest sign that the cloud boom is dying

“The data-center market is not only the web-scale guys,” Kramer said, adding that “the growth of their spend seems to be slowing.”

The color and numbers from Cisco suggest that the company is benefiting from having customers across industries that range from small to incredibly huge, as well as a business that can require those customers to spend for a protracted period of time to fully transform their tech infrastructure. Executives aren’t worried about the future either, projecting that earnings and revenue for the current quarter will grow faster than Wall Street expected.

If the geopolitical environment and cloud slowdown did show up for Cisco, it would have been a huge distress signal. Instead, Cisco’s earnings report shows that it is holding up well in this time of tech unease, which should calm Wall Street’s nerves — for now, at least.

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