By Bill Rigby, Reuters
Network equipment maker Cisco Systems Inc. is cutting 4,000 jobs, or 5 percent of its workforce, as it makes a fresh attempt to reduce costs and refocus on growth areas in the face of uncertain demand for its networking equipment.
Shares of the world’s biggest network equipment maker fell more than 9 percent after hours, their biggest drop in more than a year if reflected on Nasdaq on Thursday. A lukewarm revenue forecast dashed expectations that Cisco could overcome muted demand for tech infrastructure. Its shares had been up more than 50 percent in the past 12 months. Cisco has been whittling away at its workforce and selling off consumer businesses — such as its line of “Flip” cameras and home networking — in a turnaround begun in 2010, when it started losing ground to nimbler rivals like Juniper Networks and Palo Alto Networks. The company that once specialized in providing the backbone of the Internet now sees software and equipment for datacenters and corporate cloud networking as its keys to growth. But Wednesday’s results suggest the pace of expansion has been slower than anticipated, analysts said. “The environment in terms of our business is improving slightly but nowhere near the pace that we want,” said Chief Executive John Chambers on a conference call following quarterly earnings. “We have to very quickly reallocate the resources.”
Cisco said last month it plans to buy cybersecurity company Sourcefire Inc for US$2.7 billion. The company has made it a priority to improve security across its hardware, software and cloud products. Chambers also said the current business environment was underpforming his expectations. Despite strength in the United States, weakness in Asia and mixed results from Europe continued to dog its business. The Cisco CEO’s take on the global corporate technology environment is closely watched by investors, as Cisco is regarded a strong indicator of the general health of the technology industry because of its broad customer base.
Shares of Microsoft Corp., Oracle Corp., IBM and Hewlett-Packard Co. all fell slightly after hours. Investors had High Hopes Cisco forecast 3 percent to 5 percent revenue growth this quarter, toward the low end of expectations, as it continues to grapple with an uncertain global IT spending environment. Executives also forecast on Wednesday earnings-per-share of 50 cents to 51 cents in its fiscal current quarter. Earlier, Cisco reported fiscal fourth-quarter revenue in line with Wall Street expectations. The company’s forecast for current-quarter revenue growth translated into a range of US$12.2 billion to US$12.5 billion. Analysts on average had expected US$12.5 billion. “You had a tough set-up with higher expectations going in,” said Mark McKechnie, an analyst at Evercore, who said last quarter’s relatively strong earnings and financial forecasts had raised optimism among investors.
“Chambers’ commentary was a bit more muted; he’s talking about a slower recovery but inconsistency across geographies.”
Cisco had a net profit of US$2.3 billion, or 42 cents per share, in the fourth quarter. That compared with a profit of US$1.9 billion, or 36 cents per share, in the year-ago quarter.
Revenue rose 6 percent to US$12.4 billion, matching analysts’ expectations, according to Thomson Reuters I/B/E/S.
Excluding some items, the company reported profit of 52 cents per share, which was a penny better than analysts’ average estimate.