Cisco's security business revenue misses estimates shares drop

(Reuters) - Cisco Systems Inc's (CSCO.O) quarterly revenue in its closely-watched security business missed analysts' estimates, raising concerns about the world's largest networking gear maker's efforts to transform into a software-focused company.

The company's shares fell about 2.5 percent in after-hours trading on Wednesday.

With its traditional business of making switches and routers struggling, Cisco, like other legacy technology firms, has been focusing on high-growth areas such as security, the Internet of Things and cloud computing.

The security business, which offers firewall protection and breach detection systems, has been Cisco's fastest growing, until the last two quarter.

Revenue growth at the business slowed to 3 percent in the latest fourth quarter from 16 percent a year earlier and 9 percent in the previous quarter.

Chief Executive Chuck Robbins, the architect of Cisco's transformation plan, said he had "zero concerns" about the security business, while Chief Financial Officer Kelly Kramer forecast an uptick in revenue in the next quarter.

Analyst Patrick Moorhead of Moor Insights & Strategy said the next two quarter would indicate the health of the security business.

"I'm not concerned yet with Cisco's security numbers as many of their security innovations are linked to other businesses like switching," he said.

Cisco's switches and routers businesses – easily its two biggest – have been struggling due to sluggish demand from telecom carriers and enterprise customers.

Revenue in each of the two businesses fell 9 percent in the quarter, missing analysts' expectations, according to financial and data analytics firm FactSet.

While security business revenue of $558 million fell short of analysts estimates of $580.5 million, according to FactSet, Cisco's overall revenue was supported by its data center business and wireless business, which is now is fastest growing.

Cisco's overall revenue fell for the seventh straight quarter, but the near 4 percent decline to $12.13 billion was in line analysts' estimates of $12.1 billion, according to Thomson Reuters I/B/E/S.

Cisco's net income fell 13.8 percent to $2.42 billion, or 48 cents per share. Excluding one-time items, it earned 61 cents per share, matching analysts' estimates.

The company expects revenue to fall 1 percent to 3 percent in the current quarter. That was in line with Wall Street's expectations, as was Cisco's adjusted earnings forecast.

Cisco's stock has gained about 7 percent so far this year, well below the near 24 percent gain in the S&P 500 technology index .SPLRCT and a 10.2 percent increase in the S&P 500 .SPX.

Reporting by Laharee Chatterjee in Bengaluru; Editing by Savio D'Souza

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