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Cisco Says It's Ready to Fight

Craig Matsumoto
8/10/2011

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

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scottdTBR
scottdTBR
12/5/2012 | 4:56:33 PM
re: Cisco Says It's Ready to Fight


Hi Craig,


I agree with you - I wonder if we would have seen this kind of chest thumping if Juniper and Brocade's results had been better. It's hard now for me to imagine Cisco ever approaching the 15%-20% growth range again, even in a growing economy.


Scott

Pete Baldwin
Pete Baldwin
12/5/2012 | 4:56:33 PM
re: Cisco Says It's Ready to Fight


Lot of bravado there. It's like Cisco is back to normal in personality, even with layoffs and cost-cutting still going on...


Given the earlier Cisco discussions on these boards, I'm guessing our readers aren't buying it.  :)  Not sure I am either. I think Cisco simply saw a chance to pounce (verbally).

richariler
richariler
12/5/2012 | 4:56:32 PM
re: Cisco Says It's Ready to Fight


ust a thought as to if i come out of Uni with an Accountants degree and want to switch to the IT field what qualification would i need to get a job in CISCO networking and where would i get it and how much would it cost.


Vistaprint Coupons


^Eagle^
^Eagle^
12/5/2012 | 4:56:31 PM
re: Cisco Says It's Ready to Fight


Better off staying in accounting and getting your CPA.  Easier to find a job, easier to keep a job, and probably easier to penetrate Cisco as a potential employer


Unless you are a real genius wiz bang programmer who can write high end router code.  But I am guessing that is not the case or you would not have gotten an accounting degree.


Note: pay is also a bit better for accountants than for entry or even mid level IT staff.


Get your CPA, and if you want to go up food chain, get your MBA.


sailboat

sam masud
sam masud
12/5/2012 | 4:56:30 PM
re: Cisco Says It's Ready to Fight


Just a lot of words from Cisco--it's taken a few haircuts before but it didn't do the company much good. Ten years ago the telecom industry took a big hit when the air came out of the dot com bubble. Now we seem to be going into tougher economic times globally across major economies. I don't see Cisco's position improving in the near term, given the marco climate.

BigBro
BigBro
12/5/2012 | 4:56:29 PM
re: Cisco Says It's Ready to Fight


IMO, this wasn't the interesting quarter. Everyone, including the sales people, was working under the spectre of the layoffs, so they did their darndest to pull in whatever sales they could to avoid the axe...


Next quarter (Q1 FY2012) should be interesting.


As is so often the case, timing is everything. Is it too early to buy November puts? ;)

Rush21120
Rush21120
12/5/2012 | 4:56:27 PM
re: Cisco Says It's Ready to Fight


Cisco has been in this position with Chambers many times and massive layoffs twice.  Remember the rule shame on you first and shame on me twice.   Beating analyst numbers is an easy trick for Cisco, generally there is plenty of orders in the queue that can be pulled in and with mfg lines down there's nothing stopping Cisco from shipping before qtr/fyc end.  I've seen it many times where Cisco stopped shipping 3-4 wks out from the close.  Of course that means you have to have bookings, which Cisco still appears to have.  My guess is Q1FY12 will be bad for Cisco given the recudtion in force and the appearance they flushed inventory for Q4FY11.  

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