Cisco Slashes Forecast, Foresees Tough Times

John Chambers at Cisco Live

Cisco CEO John Chambers

You could call Cisco Systems Inc. a bellwether of tech economic activities, as its bull and bear forecasts often are not wrong. And the networking giant does not see good times ahead for the global tech market: It has warned its sales and earnings could fall between 3 percent and 6 percent annually over the next several years as demand for core networking products fall and sales in emerging markets cool.

Generally speaking, Cisco’s warning to investors isn’t necessarily a good sign for the overall tech market and, in particular, the channel. Cisco is correct in saying it’s a “canary in the coal mine” for tech economic trends. Cisco tends to react and experience downturns and disruptions ahead of most companies. The difference with this warning is Cisco isn’t alone.

In recent months, big tech companies ranging from Hewlett-Packard Co. to IBM Corp. and Intel have reported lower-than-expected earnings and, in some cases, losses as demand for traditional products slow, technologies commoditize and international competition stiffens.

For years, U.S. tech companies were buoyed by fast growth in emerging markets, but that’s no longer the case. China has become a black hole for many U.S. companies. Brazil is challenged by an economy flat-lining, and Russia is slowing rapidly. Europe is predicting growth in 2014 and beyond, but instability in the Euro Zone leaves economists thinking that demand will remain low.

Networking products are not the only technologies under pressure. Conventional PC sales will fall as much as 11 percent in 2013 and are not expected to stabilize until 2015. Server sales are falling at a rate of about 6 percent annually. And large flat screen displays and televisions are falling precipitously. Combined with the Cisco forecast, the implication is that the market has reached saturation for many common technology products.

The 2112 Group, publishers of Channelnomics, is seeing similar shifts in channel activity. In the forthcoming 2014 Channel Forecast, 2112 sees revenue and profitability from core technology products and services falling. Moreover, revenue and profits from services — managed and professional — are moderating. A possible conclusion: Technology market saturation not only brings down hardware and software sales, but will also pressure support services.

The good news coming out of Cisco: The U.S. economy is expected to grow as much as 2 percent in 2013 and will experience periodic spikes. Cisco believes an increasingly stronger U.S. economy will benefit American technology companies and lift the rest of the world.