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Are Cisco gray market partners the culprits behind Cisco's -$1 billion revenue shortfall for Q2'FY14?

The recent blacklisting of more than 1,000 Cisco gray market partners may have an unforeseen impact of as much as -$5 billion in lost revenue for Cisco during its fiscal year 2014 and perhaps much, much more. I mean, it now certainly appears that for many years Cisco quietly sanctioned a legion of partners (i.e. Cisco Partner Gray Market Certified) that operated in emerging markets.

Hummelstown, PA:   Mon, 11/25/13 - 11:59pm    View comments
 

Earlier this month the following Reuters headline screamed:

Cisco warns of big 2nd quarter revenue drop

"Cisco's orders fell dramatically toward the end of the first quarter because of big declines in many of its most important emerging market countries."

Cisco CFO Frank Calderoni confirmed as much during Cisco's Q1'FY14 earnings call:

"As we look to Q2 FY'14, we do not anticipate material improvement in our order growth. This is impacting our revenue guidance for Q2. Given our orders performance in Q1, our backlog is significantly lower than we anticipated. With that in mind, we expect total revenue to decline in the range of 8% to 10% on a year-over-year basis."

Based on $12.098 billion in sales during Cisco's Q2'FY13, that works out to a revenue guidance decline of between -$967 million (-8%) and -$1.209 billion (-10%) for Cisco's Q2'FY14.

Cisco's quarterly sales (view the spreadsheet without frames):

Source: Cisco Systems

Wall Street appears to have been shocked by Cisco's Q2'FY14 lowered guidance and has been "grasping at straws" in a quest to understand what really happened while Cisco itself appears to have been less than forthcoming with a plausible explanation.

Well, it now appears The Register has uncovered the culprit:

Feel Cisco's WRATH: Over 1,000 placed on DENIED partner sh*t list

"The Brand Protection police at the networking Goliath sent letters to more than 1,000 resellers, integrators and vendors across EMEA to tell them they are on a Denied Partner List... List includes firms such as Alcatel, Avaya, Huawei..."

The recent blacklisting of more than 1,000 Cisco gray market partners may have an unforeseen impact of as much as -$5 billion in lost revenue for Cisco during its fiscal year 2014 and perhaps much, much more.

I mean, it now certainly appears that for many years Cisco quietly sanctioned a legion of partners (i.e. Cisco Partner Gray Market Certified) that operated in emerging markets.

Related stories:

The Register: Feel Cisco's WRATH: Over 1,000 placed on DENIED partner sh*t list

Cisco operating profit soars +$331 million on mere +$10.862 billion goodwill increase

NDS appears to have been a costly $5 billion pig-in-a-poke acquisition for Cisco
 

What's your take?

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