Cisco's Still Sinking

Dragged down by the world economy, Cisco says its Q3 sales will drop a stunning 15% to 20% from a year ago

Craig Matsumoto, Editor-in-Chief, Light Reading

February 4, 2009

3 Min Read
Cisco's Still Sinking

Cisco Systems Inc. (Nasdaq: CSCO) isn't predicting when the economy will get better, but it's saying things are almost certain to get worse. (See Cisco Reports Q2 and Depressed Outlook.)

During the company's second-quarter earnings call today, CEO John Chambers noted that revenues for the third quarter, ending in April, will be down 15 to 20 percent from the previous year.

That means revenues of $7.83 billion to $8.32 billion -- compared with the $8.71 billion analysts were expecting, according to Thomson Financial .

The last time Cisco's quarterly revenues were that low was October 2007.

While admitting that all forecasts are suspect these days, Chambers said Cisco based its forecast on some chilling trends during its second quarter, which ended Jan. 24.

Orders in November were down 9 percent from the same month a year earlier, and it got worse from there. December's orders were down 11 percent, and January's were down 20 percent from the previous year, Chambers said.

Cisco's forecast includes an assumption that the worst isn't over. "The challenges we saw in the U.S. in our first-quarter call have spread globally," Chambers said.

Chambers offered no guess as to when things might get better, although he implied a 2009 recovery isn't out of the question. "The majority of our customers are saying 2010," while some predict a late 2009 recovery, he said, adding: "I tend to be a little bit more optimistic than most of our customers."

Three months ago, Cisco stunned the markets by saying revenues would decline in the second quarter. The company responded by launching plans to cut $1 billion from its budget for fiscal 2009, which ends in July. (See Cisco Predicts Q2 Plunge.) Chambers noted today that the company is on track to exceed that goal.

Cisco has also avoided any out-of-the-ordinary layoffs during this downturn, maintaining headcount at about 67,000. (Headcount fell by 329 during Cisco's second quarter.) Chambers did note that the company has realigned $500 million in "resources" to other, higher-priority tasks, and that another $500 million of these shifts is coming.

Cisco continues to cling to long-term goals of 12 to 17 percent revenue growth, assuming the economy gets better. The company has promised to use the downturn as a chance to shore up market share, and it plans to invest aggressively in the United States, which Chambers believes will be the first country to start the recovery.

In fact, Chambers has been on the speaking trail lately to preach how technology can improve the quality of life not only in developing countries, but in the United States. "We believe we can spur our nation and our economy with smart infrastructure," he said today.

Included in those changes would be new business models based on collaboration, much as Cisco itself has adopted, Chambers said.

Cisco shares were down 64 cents (4%) at $15.20 in after-hours trading.

There was a sliver of good news: Cisco met all of its (lowered) financial targets in the second quarter.

For its second quarter, which ended Jan. 24, Cisco reported revenues of $9.1 billion and net income of $1.5 billion, or 26 cents per share. In its first quarter, Cisco reported revenues of $10.3 billion and net income of $2.5 billion, or 37 cents per share. (See Cisco Reports Q2.)

For its second quarter a year ago, Cisco reported revenues of $9.8 billion and net income of $2.1 billion, or 33 cents per share.

Cisco's non-GAAP earnings per share of 32 cents beat Wall Street's expectations by 2 cents.

— Craig Matsumoto, West Coast Editor, Light Reading

About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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