Global Biz

Cisco warns of sales miss, eyes $1 billion savings

(Agencies)
Updated: 2011-05-12 13:42

BOSTON/NEW YORK - Cisco Systems Inc warned that it will fare worse this quarter than Wall Street had feared, and laid out plans for global job cuts as it struggles to revive growth.

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Shares of Cisco fell 3 percent after the world's largest networking equipment maker projected nearly flat sales growth this quarter.

CEO John Chambers, who admitted last month that the Silicon Valley bellwether had lost its way, cautioned that Cisco's fiscal year starting August would also not live up to the company's previous growth expectations.

The company is preparing a round of layoffs around the world, aiming to cut annual expenses by $1 billion, Chambers told analysts on a Wednesday conference call.

Most of the cutbacks would be done by the end of the company's fiscal first quarter, though Chambers would not be drawn on their scale. Employees hurt by the layoffs would know by the end of the summer.

"Cisco is a very strong company in a healthy market with a few problematic areas," he said.

But his optimism failed to impress shareholders, who sent Cisco shares down in late trade after the weak guidance. Cisco's sales warning obliterated an initial 4-percent lift after the company posted quarterly earnings that exceeded low expectations.

"Cisco is in a period of transition. There's a very negative camp that believes that Cisco is in a long decline ... which is why the stock is so inexpensive," said Evercore Partners analyst Alkesh Shah.

The results come as Chambers works to turn around the Silicon Valley bellwether.

Since the rare admission, he has trimmed the company's bloated management structure, offered early retirement to some employees, killed the Flip camcorder and laid off 550 workers. Chambers said he would decide on the next round of layoffs very quickly.

"Each time we've done this in the past, we've done it crisply and emerged out of it stronger. ... We want to do it surgically instead of with a blunt instrument," he said.

"We were all here for the last couple of weeks, 9:30 at night, although the pizza wasn't too good."

Zeroing in on switches

Cisco warned that overall fourth-quarter revenue would be flat to just 2 percent higher than a year earlier, implying a range of $10.84 billion to $11.05 billion, below expectations for $11.59 billion according to Thomson Reuters I/B/E/S.

Cisco shares slid 1 percent to $17.72 after rising as much as 4.2 percent to $18.53 from a Nasdaq close of $17.78.

During the conference call, analysts grilled Chambers about his plans for reviving his bread-and-butter business of selling the plumbing of the Internet and corporate networks. They zeroed in on its switching business, where sales fell 9 percent in the third quarter after sliding 7 percent in the second quarter.

Chief Financial Officer Frank Calderoni told Reuters he could not say when Cisco's switching business would grow again.

Before the company gave out weaker-than-expected guidance investors had been hoping the results would beat forecasts.

The company reported profit, excluding items, of 42 cents per share, for the fiscal third quarter ended April 30, beating the average analyst forecast of 37 cents according to Thomson Reuters I/B/E/S.

"This relieves a bit of investor concern in the near term," said Gleacher & Co analyst Brian Marshall. "While April results look decent relative to expectations, we've longer-term issues the company needs to address."

It delivered a non-GAAP gross margin of 63.9 percent, ahead of its forecast of 62 to 63 percent.

Net income fell to $1.8 billion, or 33 cents per share, from $2.2 billion, or 37 cents per share, a year earlier.