Not so secret

Cisco spies bigger problems for techland in its first-quarter disappointment. The networking company blames fallout from the Snowden affair - along with increased competition and emerging-markets weakness - as reasons why its revenue missed expectations, will fall 10 per cent in the next three months and continue dropping until the middle of next year. Some damage is self-inflicted, but there's enough concern for rivals to be looking over their shoulders, too.

Chief Executive John Chambers' excuses are worn thin. The stock's 12 per cent fall following the news means shareholders' total return has been zero over the past decade. The company faces more rivals in markets ranging from switches to set-top boxes.

In cheaper hardware, Cisco is finding it hard to compete against foreign rivals like Huawei, while software from virtual networking startups appears to be cutting into demand for high-end networking gear. A promise to buy back an additional $15 billion of stock provides a bit of salve to investors - but doesn't solve Cisco's bigger problem of an eroding competitive position.

Unfortunately for peers, Cisco's problems aren't all of its making. Juniper Networks and Hewlett-Packard face similar issues selling networking gear to countries suspicious of American spying programs. Moreover, surveillance fears explain only a small chunk of the sudden slowdown in emerging markets, according to Cisco.

Every big developing country took a substantial hit compared to a year ago. Demand in Brazil fell 25 per cent and Russia 30 percent. The most alarming part: sales dropped off a cliff in the last weeks of the quarter. "I've never seen that fast a move in emerging markets", Chambers told investors before saying: "Most of my CEO counterparts can almost finish my sentences in terms of what's occurring."

Cisco reports a few weeks later than most of its rivals like IBM, Oracle, SAP and HP, which sell a lot of gear, services and software in emerging markets. More than a fifth of Big Blue's revenue comes from these countries. And it's notable that IBM's sales to emerging markets were already surprisingly weak in the first quarter.

Cisco's news implies that conditions have since worsened. HP reports in two weeks' time. If it reveals markedly weaker conditions in emerging markets, investors in Oracle and IBM should hunker down.