Cisco Says It's Ready to Fight
Cisco Systems Inc. (Nasdaq: CSCO)'s fourth-quarter earnings call Wednesday was unexpectedly upbeat, as executives pitched the idea that Cisco's big-deal restructuring puts the company ahead of the competition.
It's an odd stance considering the stock market's gloom this week. But other networking companies have recently confirmed the economic Armageddon Cisco has been experiencing, especially when it comes to shrunken public-sector sales. So, chief executive John Chambers is now pitching Cisco's restructuring as an advantage, saying the company has started adjusting to the economy faster than its peers have.
"You will now see us move aggressively" to take advantage of that, Chambers said on Wednesday's earnings call (and he did indeed say it with italics).
Some of that aggression might affect margins, though. Twice during Wednesday's call, Chambers referred to wins in Asia that sounded like they came with low margins. He noted that Cisco has beaten Asian equipment vendors in their home countries (probably referring to Huawei), adding, "As you might think, that's going to take some discounting."
Later in the call, he mentioned: "Next quarter, you'll see pressure on routing margins because we won a couple of big deals in China."
Those deals aren't the norm, though, Chambers said. More generally, he said every employee at Cisco is now being pressed to keep margins up, with some sales and engineering rewards now being tied to profitability.
Key to the changes is a simplified structure, with nearly all of the boards and councils blown away. Some form of realignment touched 23,000 of Cisco's employees -- about one-third of the company, before counting the 6,500 who are exiting. (See Cisco Simplifies; Cuts 6,500 Jobs.)
"We will continue to accelerate and drive through this simplification process even faster," Chambers said on Wednesday's earnings call, saying it's a process "not lasting several quarters but several years."
Cisco isn't saying what products got their funding or existence cut, but executives claimed they've taken "decisive action," as Chief Operating Officer Gary Moore put it, to attack products that are underperforming or that no longer fit Cisco's central goals.
The one example given was Cisco's smart-grid business, where the company is dropping its Network Building Mediator Manager. The focus will be away from premises-based products and more on standards-based energy management strategies, Moore said on the call. (See Cisco Takes Energy Management to the Home.)
For its first quarter, which ends in October, Cisco predicted revenues of $10.9 billion to $11.2 billion, which would represent growth of 1 to 4 percent over the first quarter a year ago. That's on par with the $11 billion analysts were expecting, according to Thomson Reuters .
Cisco shares were up $1.17 (8.5%) to $14.90 in after-hours trading Wednesday.
— Craig Matsumoto, West Coast Editor, Light Reading