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Optical/IP

Cisco: No Bottom Yet

Cisco Systems Inc. (Nasdaq: CSCO) reported today that its fourth-quarter profits dropped 99 percent from the year-ago period, but the company eased some nerves by meeting Wall Street's expectations.

Cisco reported a pro forma profit for the quarter of $163 million, or 2 cents a share, meeting Wall Street's expectations. This compares to a pro forma profit of $1.20 billion, or 16 cents a share, for the year-ago period, an 86 percent drop. Actual net income for the quarter was $7 million, compared with a net income of $796 million, or 11 cents a share, for the year-ago period.

Cisco also met Wall Street's revenue expectations for the quarter, reporting $4.3 billion in sales for the period ended July 28. This compares to $5.72 billion in revenues reported in the comparable period last year, a drop of 25 percent.

The company also closed out its fiscal year 2001, reporting $22.29 billion in sales, compared with $18.93 billion for fiscal 2000, an increase of 18%. Excluding special charges, the company reported $3.09 billion or $0.41 per share for fiscal 2001, compared with pro forma net income of $3.91 billion or $0.53 per share for fiscal 2000. The actual net loss for fiscal 2001 was $1.01 billion or $0.14 per share, compared with actual net income of $2.67 billion or $0.36 per share for fiscal 2000.

Though Cisco CEO John Chambers continued to be optimistic about the company's prospects, he noted that the capital spending slump is by no means over. "We would like to think that the bottom has been reached in our industry, but we don't think that we are there yet," said Chambers.

Cisco did, however, claim that it has won back some market share from its router rival Juniper Networks Inc. (Nasdaq: JNPR). Though it didn't give revenue numbers related to specific product categories, Chambers says Cisco has won back between three to five market-share points from Juniper.

But at the same time that the company claims it's turning up the heat on Juniper, its service provider line of business -- which includes its optical networking units -- is falling on hard times. Chambers pointed out during the call that orders for the service provider line of business had "decreased sequentially in the low teens." Concerning its optical products, he remarked that visibility and growth would be "dramatically less than we would have projected six to 12 months ago."

CFO Larry Carter said that sales of optical networking gear, software, and various other items made up three percent of Cisco's revenues for the quarter.

In the past, Cisco had projected that it would have optical equipment sales of between $3 billion and $7 billion by the end of fiscal 2001. Though the specific equipment sales weren't shared on the call, Cisco retreated from its optical optimism of a few months ago. "In terms of the optical business we've made some pretty aggressive projections over a pretty wide range by the end of this next calendar year," recalls Chambers. "That range will not occur."

"The current [optical networking equipment] run-rate, while it was up in double-digits sequentially versus last quarter, it is also not at a billion dollar run-rate, even at the present time," Chambers says.

Service provider spending is still slower than Cisco would like, its executives say. "While we are confident that these [optical networking] platforms will get design wins, we are not clear yet as to when the revenues will begin flowing in from those design wins," says Mike Volpi, Cisco's CTO.

Cisco's net loss for fiscal 2001 was $1.01 billion or 14 cents a share, compared with a profit of $2.67 billion or 36 a share for fiscal 2000. Its pro forma profits for the fiscal year fell by 21 percent from the previous year.

In pro forma numbers, adding in charges related to acquisitions, restructuring costs, and other items, Cisco reported a profit of $3.09 billion or 41 cents a share for the fiscal year 2001, versus a profit of $3.91 billion or 53 cents a share for fiscal 2000.

Cisco gave guidance for its next quarter, but not for its next fiscal year. CFO Carter said Cisco's revenues for its first quarter of fiscal 2002 would likely be $4.09 billion to $4.3 billion, or flat to down five percent from its fourth quarter numbers.

Company officials also discussed Cisco's minority investments in companies with interesting technology. Since 1995, Cisco has invested in 175 companies and has realized more than $1 billion in gains from those investments. Carter says such gains are not included in the company's current financial results. Those investments have led Cisco to 19 acquisitions, Carter says.

Since its second quarter of fiscal 2001, Cisco has cut 4,962 jobs, bringing its headcount to 38,099. Cisco officials said they had finished laying people off, but their own headcount projections for next quarter suggest that there are more cubicles left to empty. "Although we have completed our workforce reduction, we do plan for headcount to decline slightly in the first quarter based on attrition -- both voluntary and involuntary," says Carter.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
The Carmack 12/4/2012 | 7:59:20 PM
re: Cisco: No Bottom Yet a pro forma profit for the quarter of $163 million [...] Actual net income for the quarter was $7 million

Could someone with business acumen tell me what the odds are of these figures not being doctored-up? Are they reporting this small profit just to show black in the books?
whose 12/4/2012 | 7:59:20 PM
re: Cisco: No Bottom Yet "In the past, Cisco had projected that it would have optical equipment sales of between $3 billion and $7 billion by the end of fiscal 2001...Cisco retreated from its optical optimism of a few months ago. "In terms of the optical business we've made some pretty aggressive projections over a pretty wide range by the end of this next calendar year," recalls Chambers. "That range will not occur."

Didn't LR name a Cisco guy the top mover and shaker in the Optical World? Let's see - Optical's 3% of their revenue - or around $130M this quarter. That qualifies for top-dog.
kbkirchn 12/4/2012 | 7:59:18 PM
re: Cisco: No Bottom Yet ProForma results are strictly the numbers related to operatations; ie the profit/loss from running the core business.

Actual results are the official accounting results that count all financial events.

ProForma is always better than Actual. In good times, the company is making acquistions. In bad times, the company is writing down inventory & doing layoffs. Both those activities are excluded from ProForma.

In Cisco's case, they were able to reuse some of that written-off inventory. Both the writeoff (loss) and the reuse (gain) were excluded from ProForma results.

Therefore, ProForma is "cooked" by definition. Both numbers are needed to create an accurate picture of a company's financial health.

l8tereader 12/4/2012 | 7:59:15 PM
re: Cisco: No Bottom Yet Chambers emphasized that not only were they hiring in Metro / VoiceIP / VPN areas (+ storage?), it was due to existing growth. That is a point we all seem to be missing - there are still areas growing quite rapidly now, while having never weakened in the first place.

The world is not coming to an end - it's merely changing. That is the point of technology, isn't it?

Just a thought.
Scott Raynovich 12/4/2012 | 7:59:14 PM
re: Cisco: No Bottom Yet $130 million a quarter is more than ONI and Corvis made in their last quarter, combined.

Just a thought...
Belzebutt 12/4/2012 | 7:59:14 PM
re: Cisco: No Bottom Yet Optical's 3% of their revenue - or around $130M this quarter. That qualifies for top-dog.

They make that little money on their 15454 (whatever the OC-48 SONET box is called)? I thought it was a market leader and major revenue maker...
johnjohn 12/4/2012 | 7:59:13 PM
re: Cisco: No Bottom Yet $130M is one sale for Lucent :)

Actually, we would kill to be in Cisco's financial position: no debt, positive cash flow, strong cash reserves.
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