& cplSiteName &

Cisco Earnings: What to Watch For

Mitch Wagner
8/13/2014

Cisco reports its fourth-quarter earnings after markets close Wednesday. The company's had problems, with revenues declining three consecutive quarters. We've also heard reports about big personnel changes, both at the top and for the rank and file. Here's what to watch for.

Cisco's revenue decline will continue. Financial analysts expect Cisco Systems Inc. (Nasdaq: CSCO)'s revenue will decline again, projecting revenues of $12.14 billion, down 2.2% from last year's $12.42 billion. But the news for investors isn't all bad -- earnings are projected at $0.53, up from $0.52 last year.

Cisco said in its most recent earnings call, in May, that weak carrier business was pulling down revenue, but the sector is improving and future growth will be driven by the cloud, the Internet of Everything (Cisco's term for the Internet of Things), and other new technologies and markets. John Chambers, Cisco's chairman and CEO, said he was confident the company is turning around. (See Cisco Earnings Suffer From Carrier Weakness.)

Probability of continued revenue decline: High. The turnaround is still a work-in-progress. Cisco may well beat analyst expectations, but it won't beat its year-ago-quarter revenues.

Chambers may step down. The 65-year-old Cisco honcho said two years ago that he might step down in two to four years. That means his window of retirement is open. Sources told Light Reading in June that Cisco would announce retirement in July. That obviously didn't happen. (See Is Cisco's Chambers Retiring in the Fall?)

But 451 Research analyst Christian Renaud told us in June that Chambers will likely announce his retirement on an earnings call, and do it one or two quarters in advance if he can. So maybe our sources were right -- just off by a few weeks?

Probability of Chambers announcing retirement: Moderate. He'll likely do it sometime. But it's more likely he'll do it when Cisco has a couple of quarters of increased revenue. He won't want to go out when the company is turning around; he'll want to do it when the turnaround is done.

Cisco may announce layoffs. At the same time we were hearing about Chamber's upcoming retirement, we also heard about a reorganization that may result in 20,000 people changing jobs inside the company. Now, Cisco blogger Brad Reese reports that up to 20% of Cisco employees might be laid off October 1.


Find out more about key developments related to the systems and technologies deployed in data centers on Light Reading's Data Center Infrastructure channel


Probability of layoffs: Moderate. Cisco has a history of laying people off -- 4,000 people a year ago, plus 900 in October, according to Business Insider. Layoffs obviously help the bottom line in the short term by cutting costs, but layoffs also mean there are fewer hands to take advantage of possible new business. Layoffs without a strategy change are like a medieval doctor bleeding a patient in hopes of making them well again.

Cisco may split the company. This is a crazy idea -- but maybe crazy enough to work: Split Cisco into high-growth and high-yield businesses, suggests RBC Capital Markets' Mark Sue. Both companies would go on a buying spree, with "YieldCo" picking up high-yield companies such as Juniper, Amdocs and Check Point, while "GrowthCo" would buy high-growth small, and nimble technology companies with a focus on new and emerging technologies.

Probability of Cisco splitting up: In the words of the immortal Wayne Campbell: "It might happen. Yeah, and monkeys might fly out of my butt."

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

(3)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
smkinoshita
smkinoshita
8/13/2014 | 10:42:26 PM
Re: Whisper
@Sam Masud -- I was thinking the same thing.  Business IT needs are evolving rapidly lately.  If Cisco is really willing to adapt I don't think the bad times will last too long (and if they're not... well, more of the same)
sam masud
sam masud
8/13/2014 | 3:45:30 PM
Re: Whisper
Mitch

Seems like Cisco's big customers are telling Mr. Chambers to really, really think hard about software (SDN?). Check out this hot-off-the-press article:

http://www.bizjournals.com/sanjose/news/2014/08/13/ciscos-john-chambers-told-by-major-customers-get.html
Mitch Wagner
Mitch Wagner
8/13/2014 | 12:04:52 PM
Whisper
SeekingAlpha says the Cisco whisper number is $0.53, same as the official earnings estimate. And that Cisco has a 55% record of beating the whisper number. 
More Blogs from Wagner’s Ring
We're packing our bags for Dallas, for our cleverly named Network Virtualization and SDN Americas conference, but first we sat down to talk about NV, SDN and our favorite travel snack.
Will Apple's new iPhone 11 grow telco profits? Will Apple TV+ compete in a crowded OTT market? And why does everybody have fabulous hair in an Apple TV+ series where civilization has collapsed because everybody in the world is blind?
After years of defending itself against US spying accusations, Huawei claims the US government is spying on it.
The satellite network operator is looking to the Open Networking Automaton Platform (ONAP) to automate connecting its space-based network with terrestrial operators.
VMware's been shopping this summer, buying three cloud and networking startups that will bolster its telco strategy.
Featured Video
Upcoming Live Events
October 22, 2019, Los Angeles, CA
November 5, 2019, London, England
November 7, 2019, London, UK
November 14, 2019, Maritim Hotel, Berlin
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events