October 25, 2020

Cisco’s Profit Falls 36%

SAN FRANCISCO — Cisco Systems showed little sign of a turnaround in its latest quarter.

Cisco reported Wednesday that net income in the fourth quarter ended July 30 fell 36.3 percent to $1.2 billion, or 22 cents a share, from $1.9 billion, or 33 cents, in the same quarter a year ago.

The company said revenue climbed 3.3 percent to $11.2 billion, from $10.8 billion.

Weak spending by government agencies combined with slow decision-making has left Cisco adrift. But an overhaul that includes cutting more than 7,000 jobs and jettisoning products like the Flip video camera is expected to take time to lift the company’s results.

The company has long been considered a bellwether for technology spending, but its internal problems have made it a less reliable stand-in for the broader technology industry. Cisco makes routers and switches used by corporations and government agencies to operate data centers and telecommunications networks.

The adjusted income of 40 cents was above the expectations of Wall Street analysts. They had expected 38 cents a share and revenue of $10.98 billion on that basis, according to a survey of analysts by Thomson Reuters.

“We’ve made significant progress on our comprehensive action plan to position ourselves for our next stage of growth and profitability, while delivering solid financial results in Q4,” John T. Chambers, chief executive of Cisco, said in a statement. “As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company, that is laser-focused on helping our customers use intelligent networks to transform their businesses.”

Cisco, based in San Jose, Calif., is trying to reverse its course after a nearly yearlong slump. The company has responded by cutting costs and overhauling its management structure to try to restore some its former glory. Last month, Cisco said it would cut 6,500 jobs through layoffs and buyouts along with selling a factory in Mexico. The company took a $772 million charge for the restructuring in the fourth quarter.

Those reductions come in addition to 550 jobs eliminated in April.

While Cisco struggled over the last year, smaller rivals like Juniper Networks performed relatively well. More recently, however, Juniper and Brocade Communications Systems, another maker of technology equipment, have warned of slumping demand for their products.

Cisco’s problems include a slowdown in spending by the public sector, which makes up around a fifth of its overall sales. Because of tight budgets, government agencies, public universities and hospitals are balking at buying big-ticket technology equipment, a situation that is not expected to change any time soon.

While Cisco’s main primary products face headwinds, some of its other businesses have shown strong growth in recent quarters, like phone systems, video conferencing and wireless products. Mr. Chambers is counting on these newer areas to lift the company as its more mature products make smaller gains.

But investors are focused on Cisco’s slow overall growth, and have sent the company’s shares down more than 40 percent over the last 12 months.

Shares of Cisco fell 33 cents, or 2.3 percent, to close at $13.73. They rose 41 cents, or 3.3 percent, in after-hours trading.

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Cisco Posts Lower Profit, but Exceeds Expectations

Cisco Systems’ streak of lackluster earnings continued on Wednesday as the company failed to invigorate its slow-growing business.

The mixed results come as John T. Chambers, Cisco’s chief executive, forges ahead with an overhaul meant to combat sluggish decision-making while focusing the company on its core computer networking business. But the turnaround, which started last month, is expected to take a while.

Mr. Chambers said that he planned to cut an unspecified number of jobs and potentially eliminate or scale back additional products to lift Cisco’s growth. With about 73,000 employees, the company has already eliminated 550 jobs, offered employee buyouts and killed the Flip video camera as part of his month-old turnaround plan.

Mr. Chambers is trying to reassure Wall Street that he is moving quickly to fix Cisco, the computer-networking colossus. Bureaucracy, a lack of innovation and stiff competition have wounded the company, a one-time technology industry high flier.

“We know what we have to do,” Mr. Chambers told analysts in a conference call on Wednesday. “We have a clear game plan. We are a company with a track record.”

Cisco’s reported net income in the fiscal third quarter fell 18 percent to $1.8 billion, or 33 cents a share, from $2.2 billion, or 37 cents, in the year-ago quarter.

The company, which sells routers and switches that direct Internet traffic, said revenue climbed 5 percent, to $10.9 billion, from $10.4 billion.

The adjusted income of 42 cents was above the low expectations of Wall Street analysts. They had expected 37 cents a share and revenue of $10.86 billion, according to a survey of analysts by Thomson Reuters.

The additional details about his turnaround plan, along with a tepid forecast, failed to reassure investors. Cisco’s shares fell 2.9 percent, to $17.26, in after-hours trading.

Cisco’s shares are down more than 30 percent over the last 12 months because of the slow growth. At the same time, the Nasdaq composite rose nearly 20 percent.

Fourth-quarter revenue is expected to be flat or gain 2 percent, the company said. Adjusted income will be 37 to 39 cents, lower than the 42 cents that analysts had expected.

In a sign of its continuing troubles, Cisco said that sales of switches during the quarter fell 9 percent, but that sales of routers rose 7 percent.

Sales of corporate phone systems and videoconferencing, however, increased 39 percent while wireless products rose 32 percent.

Cisco is facing stiff competition from companies like Juniper Networks and Alcatel-Lucent for corporate customers, including telecommunications companies, hospitals and universities. Spending by government agencies was particularly weak for Cisco, declining 8 percent in the quarter.

“It’s a company that has pockets of weakness, but it also has pockets of strength,” said Colin Gillis, an analyst with BGC Financial.

Cisco faces additional pressure because of evolving markets and a failure to adapt. Many networking products are now specialized based on the kind of customer, a development that Cisco was late to embrace.

In an effort to reverse the slide, Mr. Chambers has begun a series of changes intended to focus Cisco on its core products. He has scaled back the company’s consumer division, which included the Flip video camera, but others may be affected. Cisco said that it expected to save $1 billion over the next 12 months from its job cuts and streamlining. 

Last week, Mr. Chambers said he would take additional steps to streamline Cisco by revamping its complex management structure, which had executives serving on a patchwork of “councils.” Instead of encouraging cooperation, the councils created additional bureaucracy.

But the turnaround is expected to take time. Indeed, details of the coming job cuts, which will affect both employees and contractors, will not be disclosed until the end of summer, the company said.

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