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Optical/IP

Investors Sell the Cisco News

In reporting its fiscal fourth quarter ending July 26, Cisco Systems Inc. (Nasdaq: CSCO) met analyst expectations for revenue but fell slightly short on profit.

Other lukewarm signals about future growth appeared to spook investors trading in the stock in the after-hours market. Shares in Cisco dropped 6 percent in heavy post-close trading.

The company reported net sales for the fourth quarter, which ended on July 26th, of $4.7 billion. This was slightly up from analyst estimates of $4.66 billion, according to First Call. Revenues were also up from the $4.6 billion reported in the company's third fiscal quarter of 2003.

Profits continued to grow, though not quite at the rate that analysts had forecast. Cisco reported fiscal fourth-quarter net income of $982 million or $0.14 per share, on a generally accepted accounting principles (GAAP) basis. This compares with $772 million or $0.10 per share for the fourth quarter of fiscal 2002 and $987 million or $0.14 per share for the third quarter of fiscal 2003. Analysts were looking for $0.15 per share.

A big question leading up to the call was how much the company's June acquisition of Linksys would add or subtract from its financial results (see Cisco Completes Linksys Acquisition). And the answer is: Linksys is contributing a little bit of revenue growth, but pulling down Cisco's profit margins.

The company said that revenues from newly acquired Linksys accounted for about $20 million in the fourth quarter. Most investors had hoped for a larger contribution from the startup this quarter.

The company managed to keep its gross margins relatively high, at 69.9 percent, but that was down slightly from 70.8 percent. The slip in margins was directly related to the Linksys acquisition, according to Cisco officials.

There were other items that the hardcore bean-counters may not like. For example, days sales outstanding (DSO) in accounts receivable at the end of the fourth quarter of fiscal 2003 -- a measure of the sales cycle -- were 26 days, compared with 21 days at the end of the fourth quarter of fiscal 2002. That also compares with DSOs of 23 days at the end of the third quarter of fiscal 2003. Financial analysts generally like to see lower DSOs as a sign that sales are picking up.

Inventories came in at $873 million, that's up slightly from $765 million in the prior quarter. Generally, it's okay for inventories to rise if sales are rising, but Cisco's sales did not grow as quickly as the inventories, indicating that networking gear may be backing up in the sales channel.

On the guidance front, the company expects only modest growth ahead. The company gave guidance of a 2 to 4 percent rise in revenue for its first fiscal quarter (that's the next one), including Linksys revenue of $115 million. Gross margins in are projected to be 67 to 69 percent (with Linksys accounting for a negative 1 percent), said Cisco officials.

Cisco CEO John Chambers did have some good news: He said that federal sales were up last quarter. He also said there is increased confidence from enterprise CEOs. North American sales also picked up in the fourth quarter. And service provider sales increased in the single digits during the quarter.

Chambers said the company saw sequential growth in the high-end router market, but he reminded investors on the earnings call that these orders can often be lumpy. He said that mid and low-end routers were weaker than he had expected. Optical sales were up 40 percent sequentially.

— Marguerite Reardon, Senior Editor, Light Reading

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optical_ranger 12/4/2012 | 11:37:39 PM
re: Investors Sell the Cisco News Redstreak ---

You obviously had not had the misfortune to be part of this kind of process -- and I hope you and whoever reads it never does. Though the managing the bottom 5% works in a healthy economy (you have an influx of people creating the opportunity for "not good" fits to occur)....it becomes extremely painful in this type of economy because you keep cutting and you will cut talent. This is not good for morale (on either end .... those who are cut and those who have to compile the list)

Yes this is business but you can conduct business with some heart! And hopefully you get one!
Redstreak 12/4/2012 | 11:38:27 PM
re: Investors Sell the Cisco News Mr Snake;

1). I don't believe this process does maintain the best and brightest. It does in some case, but in others it becomes a popularity, ass kissing, yes-man contest. It can be destructive to say the least. Even people I know in Cisco comment that management is now cutting in the "meat" of the company.
**And people I know at CSCO say that it’s business as usual; ranking and rating determines the best performers and those are the ones who stay.

2). Who says they are only cutting losers? (btw-I do agree if someone is not performing-they should be cut). My point was that I know good, hardworking "performers" are being cut.
**Since I don’t personally know anyone who was cut, I’ll concede that you may be right on this one. I probably shouldn’t have used the word ‘losers’, and I apologize (I’m just real tired of the whining and complaining on this forum by those who insist it’s a company’s responsibility to take care of them from cradle to grave). Believe me, I don’t think layoffs are a GOOD thing; but if budgets are slashed, or a person is not pulling his weight, sometimes it's the only choice.

3). In past lives I have found the people actually doing the cutting (read upper management) should be cut themselves. Loads of them are useless. The process is usually upside down.
**Sigh...this is a never-ending argument and I know most everyone reading this will disagree with me. So be it. In such a huge company, there are bound to be a number of less-than-superior managers. But if you cut upper management, who the heck is going to run the company? The remaining staff? Not bloody likely! Clearly CSCO management is doing something right; the company is still doing pretty danged well against its competitors. And no, I don’t work at CSCO.

3). To answer your question about how I would run my company? I would run my company "ethically". Are you saying you would do what ever it took to keep the stock price up? hmmm-can you say "Worldcom" or "Enron".
**No, I never said that I would do whatever it took to keep the stock price up. You’re reading something into my question that’s not there.

4). Many of those same people are responsible for getting Cisco where they are today. Don't you think the company has some "responsibility" to see they are successful too?
**I think the company owes it to their current employees and stockholders to keep the company in business. People need to take responsibility for themselves and stop expecting that companies are going to look out for their best interests. No one wants to hear that, either, but that's reality, folks.

5). Finally I wonder if you have ever been on the receiving end of a layoff. Karma does come around you know.
**Yes, I was laid off a few times some years ago when I first got into this industry. I am thankful to be employed right now and I do my job to the best of my ability in hopes of remaining employed. But I don’t count on it – in this economy, we need to be prepared for anything.




salessnake 12/4/2012 | 11:38:31 PM
re: Investors Sell the Cisco News Redstreak,

Let me give you a recent "real world" example that has nothing to do with telecom/datacom.

Oakley (yeah that is right the Sunglass maker) sponsers Lance Armstrong. Even when Lance could have been dying of cancer they stepped in to pay his health insurance. Sure it was probably not the "best money move" at the time. He could have died. Other sponsers and cycling teams cut and ran-Codfis for example.

Now Lance is a 5 time Tour winner and fiercely loyal to Oakley. How much is that worth? See it pays to be nice to poeple.

Signed
the great white sales snake.


salessnake 12/4/2012 | 11:38:34 PM
re: Investors Sell the Cisco News
Several points:

1). I don't believe this process does maintain the best and brightest. It does in some case, but in others it becomes a popularity, ass kissing, yes-man contest. It can be destructive to say the least. Even people I know in Cisco comment that management is now cutting in the "meat" of the company

2). Who says they are only cutting losers? (btw-I do agree if someone is not performing-they should be cut). My point was that I know good, hardworking "performers" are being cut.

3). In past lives I have found the people actually doing the cutting (read upper management) should be cut themselves. Loads of them are useless. The process is usually upside down.

3). To answer your question about how I would run my company? I would run my company "ethically". Are you saying you would do what ever it took to keep the stock price up? hmmm-can you say "Worldcom" or "Enron".

4). Many of those same people are responsible for getting Cisco where they are today. Don't you think the company has some "responsibility" to see they are successful too?

5). Finally I wonder if you have ever been on the receiving end of a layoff. Karma does come around you know.
Redstreak 12/4/2012 | 11:38:35 PM
re: Investors Sell the Cisco News Why should they be slammed for maintaining only the best and brightest? Makes good business sense to me.
How do you think they got so successful? The truth is that most successful companies keep the most productive folks around and find a way to lose the losers. Get real; this is business!
Are you really suggesting that they should do otherwise? Keep everybody, productive or not? Is that how YOU would run a company? This is not charity, man, it's cold hard business.
salessnake 12/4/2012 | 11:38:44 PM
re: Investors Sell the Cisco News I was just wondering how Cisco never gets slammed for getting rid of 5% of their people every qtr?

Maybe I missed it, but they never seem to mention this in the press or it is talked up in chats? hmmm

$20b in cash, decent sales, decent profits yet still cutting good people-shameful. I guess it is all the almighty dollar.

atmguy 12/4/2012 | 11:38:48 PM
re: Investors Sell the Cisco News
Cisco was not able to fiddle with the numbers due to the new accounting laws.

Ouch!
what the 12/4/2012 | 11:38:51 PM
re: Investors Sell the Cisco News Shot Themselves in the Foot there

Will that Heal ?
UncleBond 12/4/2012 | 11:39:06 PM
re: Investors Sell the Cisco News Q4 last year $772M or 10 cents/share = 7.72B outstanding shares
Q4 this year $982M or 14 cents/share = 7.01B outstanding shares

So, without the generous buyback of 710M shares, EPS would be 12.7 cents

telebud 12/4/2012 | 11:39:08 PM
re: Investors Sell the Cisco News I think because the GAP went into effect companies
are forced to report more accurate numbers.
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