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Cisco's Still Sinking

Craig Matsumoto
2/4/2009
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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

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Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 4:12:30 PM
re: Cisco's Still Sinking
First hint of possible Cisco layoffs. They aren't doing any yet, and it wouldn't be a big layoff... but it's the first earnings call, since the recession started, where I've heard Cisco mention the possibility.

http://www.lightreading.com/bl...

I think they said they'll be "de-emphasizing" certain areas. They didn't specify which ones, but it's almost certainly older, non-Web-2.0 products.
sjd6
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sjd6,
User Rank: Light Beer
12/5/2012 | 4:12:29 PM
re: Cisco's Still Sinking
In other words you still have a job, but only if you move to India. How nice.
Sisyphus
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Sisyphus,
User Rank: Light Beer
12/5/2012 | 4:12:29 PM
re: Cisco's Still Sinking
oh come on.

LR covers other companies in the telco space and is utterly balanced, talking about the tough economy and such despite billions dollar *losses*.

cisco announces down revenue, but still a quarter that is profitable by a few billion bucks. and yet the headline reads "cisco is still *sinking*?". please. that seems biased, and seems to go back to the sensationalist -and perhaps biased- roots LR has when it gets to its worst traditions.

why don't you just sink the entire industry and go down with it, taking confidence away from any individual investor?

disclaimer: i *do* work for cisco, but have always stayed away from posting anything that wasn't my personal opinion, and cisco-biased in these forums. check my record.

it *is* a rough quarter, but it was a *profitable* quarter in stark contrast to many other companies in the sector, showing that innovation and aggressive moves into adjacent markets -which other vendors shy away off because of risk- pay off when properly executed. no word about the fact emerging technologies *grew* in cisco while traditional telcom big iron decreased. it's oddly self-serving given the fact light reading's analytical strength is not in adjacent market segments, but rather in the box market.

as a long term light reading reader this is one coverage that disapppints me, and it has nothing to do with where my paychecks come from, but rather with my personal expectations when it comes to LR. i expected more thorough and, honestly, intelligent analysis, and not taking a grautitious and intellectually lazy potshot.
Sisyphus
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Sisyphus,
User Rank: Light Beer
12/5/2012 | 4:12:29 PM
re: Cisco's Still Sinking
no hard feelings, have respected your coverage for many years, and understand the deadline stuff - as well as the pressure to be somewhat provocative (heck, i'll read a provocative headline before a boring one any day of the week). we all know a certain dose of antagonism sells, so i am just expressing my opinion, and have always loved the fact these forums allow me to do so.

it *is* a very rough environment, no one is immune from that, and macroeconomic dynamics that no single company -irrespective the size- has control over will run rampant until whatever macro-factor stops or -let's not hope for too much- even reverses the trend.

it's going to be a rough 2009 - we are all going to scramble and sweat to somehow meet even corrected revenue goals, and be thankful to keep our jobs...

that said, i think growth opportunities lie ahead when it comes to packaging networking solutions more effectively with applications; i find it odd how slow networking vendors as a whiole are in trying to offer their unique value add to emerging composite application architectures, enriching those with network capabilities. we are at 0 on a 1-10 scale there, and i think we have a lot to collectively offer to the application world.

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 4:12:29 PM
re: Cisco's Still Sinking
Sorry about that, Sisyphus. The headline was simply meant to say revenues hadn't stopped falling. Not trying to say Cisco is sunk.

And yes, Cisco is profitable while so many others aren't - but Cisco is also being watched as a bellwether. People want to know if the company sees signs of recovery yet; the answer is no. That's the central question, so that's what gets the headline.

> ... no word about the fact emerging technologies *grew* in cisco while traditional telcom big iron decreased.

Because I wasn't able to pick up the market specifics portion of the call before having to file the story. That's a tradeoff we deal with on some of these end-of-day earnings calls. I'll be going back through the call anyway, so thanks for pointing out the telecom factor.
sigint
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sigint,
User Rank: Light Beer
12/5/2012 | 4:12:28 PM
re: Cisco's Still Sinking
In other words you still have a job, but only if you move to India. How nice.

From what I hear from local (i.e., Bangalore) Cisco folks is that there's no hiring anywhere in Bangalore or India (except in some very selected customer facing jobs).

There are, however, plenty of jobs open in China. Those might be *How nicer*.
brahmos
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brahmos,
User Rank: Light Beer
12/5/2012 | 4:12:21 PM
re: Cisco's Still Sinking
there are limited number of engineer reqs in bangalore for urgent needs. but generally there is a hiring freeze. I doubt there will be campus hiring this year.
sigint
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sigint,
User Rank: Light Beer
12/5/2012 | 4:12:19 PM
re: Cisco's Still Sinking
brahmos:
there are limited number of engineer reqs in bangalore for urgent needs. but generally there is a hiring freeze. I doubt there will be campus hiring this year.
___________________________________________________
Only in the Nuova group, I'm told. They tend to operate almost as a company within a company. No corporate diktats apply to them, it would appear.
Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 4:12:17 PM
re: Cisco's Still Sinking
No problem, Sisyphus. Thanks for the comments. You're welcome to call us out any time when you think we've gotten out of line. Can't promise we'll *do* anything about it, but we'll listen. :)
brahmos
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brahmos,
User Rank: Light Beer
12/5/2012 | 4:12:17 PM
re: Cisco's Still Sinking
you are right - sigint ;)
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