Cisco still making money but not as much

Cisco Systems Inc.’s revenue for its third fiscal quarter fell 17 per cent from a year earlier, while net income plunged 21 per cent to US$1.3 billion, or $0.23 per share.

Despite the declines, Cisco delivered solid financial performance given the weak global economy, and is well-positioned for the eventual recovery, Chairman and CEO John Chambers said in a statement. The dominant networking vendor is considered a bellwether of technology, and its results and forecasts are being closely watched as signs of the economy’s health.

Revenue fell to $8.2 billion in the quarter, which ended April 25.

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Excluding certain one-time items, Cisco reported net income of $1.08 billion, or $0.30 per share. Analysts polled by Thomson Reuters had expected earnings of $0.25 per share on revenue of $8.07 billion.

In its fiscal fourth quarter, Cisco expects revenue to again fall between 17 per cent and 20 per cent from a year earlier, executives said on a conference call to discuss the results. But Chambers had some encouraging news on the global economy. Customers around the world have recently told Cisco they are seeing a “leveling off,” though at a disappointing rate of year-over-year growth, after a long period of continuing deceleration, he said.

Cisco also is standing by its long-term forecast of year-over-year revenue growth between 12 per cent and 17 per cent, Chambers said. The key to that is Cisco’s position as the only vendor with an effective architecture that spans home, service-provider and enterprise networks, he said.

However, during its third quarter business was down around the world in the company’s major product categories. Routing orders fell 32 per cent from a year earlier, switching by 20 per cent, and advanced technologies by 12 per cent. The latter category includes the many new product areas Cisco is developing, including video, unified communications and security. Orders were down in all those categories, and the company’s storage network business saw orders fall 45 per cent.

Orders were down more than 20 per cent in all regions of the world, ranging from a 22 per cent decline in the U.S. and Canada to a 31 per cent drop in emerging economies outside Asia.

The company is on track to cut annual costs by $1 billion by the end of this year and believes it will reach a “stretch goal” of cutting $1.5 billion, Chambers said. Among other things, Cisco cut travel expenses by about 50 per cent from the second quarter, he said. The company is still relying on a “pause” in hiring and “limited restructuring” to cut its staffing costs, Chambers said. Under that ongoing restructuring, Cisco is reallocating resources to its top priorities. Its total head count declined by about 760 in the quarter to 66,558.

“At the present time it looks reasonably good … that we’ll be able to avoid a broad-based layoff or salary reduction,” Chambers said.

It was a very active quarter for Cisco, in which the company announced its first servers as part of its Unified Computing initiative on March 16 and acquired Pure Digital, the maker of Flip brand pocket camcorders, just four days later.

Chambers acknowledged Cisco’s move into computing will affect its relationships with other enterprise vendors. “We will get closer to some partners and compete more with others,” Chambers said. He also gave a personal endorsement of Pure Digital’s products, saying he always carries a Flip camera as well as a PDA (personal digital assistant) in business as well as his personal life.

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