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Cisco Systems Beats, but Profit Slides

By PETER SVENSSON

posted: 292 DAYS 8 HOURS AGO

comments: 14

filed under: Earnings

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NEW YORK (Feb. 4) - Technology bellwether Cisco Systems Inc. said Wednesday that incoming orders declined dramatically in January, indicating that the shrinking economy has more pain in store for the industry.

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Chief executive John Chambers said the company, the world's largest maker of computer networking gear, saw fewer and fewer orders as its latest quarter progressed. In November, orders were down 9 percent from the year before. In January, the drop was 20 percent.

"That was a bit of a shock," said analyst Erik Suppiger at Signal Hill Capital Group.

Cisco's fiscal second quarter ended Jan. 24, nearly a month after other technology companies that have reported their quarterly results recently. That means Cisco's results provide a window into future reports from the rest of the industry. Cisco is also sensitive to trends in the market because more than 80 percent of its revenue is from sales, rather than recurring service contracts.

Chambers projected a 15 percent to 20 percent drop in revenue in the current quarter. That would put revenue at $7.8 billion to $8.3 billion, below the average estimate of $8.7 billion projected by analysts polled by Thomson Reuters.

Shares in San Jose, Calif.-based Cisco fell 71 cents, or 4.5 percent, to $15.13 in extended trading after Chamber's comments.

The decline in orders was spread across the globe, though Europe and Japan had a better appetite than the U.S. and emerging markets.

Switches and routers, Cisco's core products, saw the biggest declines. Revenue grew from services and some new, still minor businesses like videoconferencing.

As expected, the public sector was a bright spot, with orders up around 5 percent. Telecommunications service providers, meanwhile, cut their orders by about 20 percent.

For the just-ended quarter, sales were $9.1 billion, down 7.5 percent from a year ago. The company announced at the start of the quarter that it would cut back on discretionary expenses and freeze hiring. But it wasn't able to slash expenses as quickly as sales fell and its profit dropped 27 percent to $1.5 billion, or 26 cents per share, from $2.1 billion, or 33 cents per share, a year ago.

Excluding items, earnings were 32 cents per share, beating the average analyst estimate by 2 cents.

Cisco's goal is to save $1 billion in costs during the fiscal year, and executives said it was well on its way to achieving that.

Unlike many other technology companies, it hasn't yet announced big layoffs, and Chambers said it still hoped to avoid any.

But if business continues to deteriorate dramatically and layoffs become necessary, the cuts will likely involve at least 10 percent of Cisco's work force of 67,300, Chambers said.

"It needs to be a critical mass to justify the loss of business momentum, impact on employees and impact on key projects," the CEO said. "If we execute successfully ... we may be able to avoid broad downsizing events."

Cisco itself is well set to weather tough credit markets, ending the quarter with $29.5 billion in cash and equivalents. Executives repeated their intention to grab market share from weaker competitors in the downturn, as the company has done in previous economic troughs.

Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

2009-02-04 16:12:57

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14 comments

Tae rod moon 03:14:17 PM Feb 05 2009

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wow

JohnEBare 11:21:10 AM Feb 05 2009

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Lot's of people made themselves rich buying and selling Cisco stock. Got to know when to hold 'em and know when to fold 'em. Don't blame Cisco if you don't know how the game is played, stop playing.

User598486 09:03:18 AM Feb 05 2009

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I met a woman Christmas, at a party, and she worked for Cisco. She was voting for Obama. I said, "If you vote for Obama, I bet in one yr. you lose your job. Well, it only took two months, she lost her job. Laid off!

dterraman 06:21:16 AM Feb 05 2009

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maybe the government man could take this one over?

Millioni 01:14:30 AM Feb 05 2009

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CISCO BEATING ANALYSTS ESTIMATES IS AN OLD GAME THAT THE ANALYSTS HAVE BEEN PLAYING ON US FOR DECADES. IF YOU STILL BELIEVE IN NALYSTS ESTIMATES REGARDING ANY STOCK YOU ARE IN BIG TROUBLE.

Kamdajani 12:01:41 AM Feb 05 2009

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COOKED MEDIA PAID BY WALL STREET CROOKS CISCO SYSTEMS PROFIT FALLS 27 PERCENT HOW IT CAN BEAT ESTIMATES NO WAY THAT IS WHY TOMORROW CISCO TO TUMBLE DRAGGING WITH IT ALL TECH COMPANIES.DOW NEXT STOP 6000 SELL SELL SELL OR BURN MORE CASH

CDAVECRZ 06:05:23 PM Feb 04 2009

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WHERE

L0104 06:04:34 PM Feb 04 2009

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I purchased CISCO several years ago when it split at the cost of approximately $75.00 per share. I invested $10,000.00 Big mistake. I was told by experts that it was a winner. Here a decade later my $10,000 investment is worth less than $2000.00. I'll stick to savings bonds.

CDAVECRZ 06:00:44 PM Feb 04 2009

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I WANT TO KNOW WHY,,,GASOLINE IS 1.77 A GALLON???? WHEN IT WAS $150 A BARREL IT SOLD FOR $4.50 A GALLON,,,,NOW THAT IT $40 A BARREL,,IT SHOULD SELL FOR $1.20 A GALLON,, AND THE PRICE IS GOING UP AS THE BARREL PRICE STAYS LOW,,,WHY??? WHO F--KING US NOW???