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Cisco Earnings Down; January Notably Weak

Technology bellwether Cisco Systems said that incoming orders declined dramatically in January, indicating that the shrinking economy has more pain in store for the industry.

Chief executive John Chambers said the company, the world's largest maker of computer networking gear, saw fewer and fewer orders as its latest quarter progressed. In November, orders were down 9 percent from the year before. In January, the drop was 20 percent.

"That was a bit of a shock," said analyst Erik Suppiger at Signal Hill Capital Group.

Cisco's fiscal second quarter ended Jan. 24, nearly a month after other technology companies that have reported their quarterly results recently. That means Cisco's results provide a window into future reports from the rest of the industry. Cisco is also sensitive to trends in the market because more than 80 percent of its revenue is from sales, rather than recurring service contracts.

Chambers projected a 15 percent to 20 percent drop in revenue in the current quarter. That would put revenue at $7.8 billion to $8.3 billion, below the average estimate of $8.7 billion projected by analysts polled by Thomson Reuters.

Shares in San Jose, Calif.-based Cisco fell 71 cents, or 4.5 percent, to $15.13 in extended trading after Chamber's comments.

The decline in orders was spread across the globe, though Europe and Japan had a better appetite than the U.S. and emerging markets.

Switches and routers, Cisco's core products, saw the biggest declines. Revenue grew from services and some new, still minor businesses like videoconferencing.

As expected, the public sector was a bright spot, with orders up around 5 percent. Telecommunications service providers, meanwhile, cut their orders by about 20 percent.

For the just-ended quarter, sales were $9.1 billion, down 7.5 percent from a year ago. The company announced at the start of the quarter that it would cut back on discretionary expenses and freeze hiring. But it wasn't able to slash expenses as quickly as sales fell and its profit dropped 27 percent to $1.5 billion, or 26 cents per share, from $2.1 billion, or 33 cents per share, a year ago.

Excluding items, earnings were 32 cents per share, beating the average analyst estimate by 2 cents. Cisco's goal is to save $1 billion in costs during the fiscal year, and executives said it was well on its way to achieving that. Unlike many other technology companies, it hasn't yet announced big layoffs, and Chambers said it still hoped to avoid any. But if business continues to deteriorate dramatically and layoffs become necessary, the cuts will likely involve at least 10 percent of Cisco's work force of 67,300, Chambers said. "It needs to be a critical mass to justify the loss of business momentum, impact on employees and impact on key projects," the CEO said. "If we execute successfully ... we may be able to avoid broad downsizing events."

Cisco itself is well set to weather tough credit markets, ending the quarter with $29.5 billion in cash and equivalents. Executives repeated their intention to grab market share from weaker competitors in the downturn, as the company has done in previous economic troughs.

Источник: Wireless Week

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