Cisco posts Q4 decline but sees promise

Chairman and CEO John Chambers sees signs of an economic rebound

Cisco Systems' revenue fell 18 percent in its fiscal fourth quarter ended July 25, hitting $8.5 billion, while its net income dropped to $1.1 billion, or 19 cents per share.

But in a prepared statement, Chairman and CEO John Chambers said the company sees positive signs during the quarter that could signal a rebound in the world economy and the company's business.

"We believe there is a good chance we will look back and see that the tipping point occurred in our business in Q4," Chambers said in the earnings news release.

Not counting one-time items, Cisco's profit was 31 cents per share, better than the consensus analyst estimate of 29 cents per share by Thomson Reuters. Analysts had expected revenue of $8.52 billion.

Revenue for all of Cisco's main businesses was down significantly from a year earlier, with routing hurting most at 27% lower, the company said on a conference call to discuss the results.

Product orders were down significantly from a year earlier in most parts of the world. Emerging markets, a category that includes India and China, was hit hardest. But Chambers said he expects Europe to lag behind other regions in the eventual recovery, noting countries there also felt the downturn about two quarters later than the rest of the world.

Chambers cautioned it will take several more quarters to tell whether a recovery is under way. But he said normal seasonal changes returned between the third and fourth quarters, a key indicator that the market is getting back on track. During tough times, sales don't rise and fall between quarters as they normally should, and for the first time in the fiscal year just ended, there was a normal seasonal change in the fourth quarter, he said.

"The trends are absolutely in a positive scenario," Chambers said.

Cisco is ahead of its goal to cut $1.5 billion in annual expenses and has completed the "limited restructuring" that it had warned would result in job cuts of 1,500 to 2,000 over the third and fourth quarters, assuming there are no major changes in market conditions, Chambers said. Cisco estimates the restructuring resulted in headcount reductions slightly above the top end of that forecast.

Sales of the company's Unified Computing architecture, which combines data center networking and servers, have been largely to medium-sized enterprises but should start moving into large companies by the end of this year as those customers complete their longer decision processes, Chambers said. One interesting sales note on the conference call was that Cisco has made its first $1 million enterprise sale of the Flip Video cameras it added through its Pure Digital acquisition.

Cisco plans to get more aggressive on the acquisition front in the next several months now that it has reorganized its management structure to better support the 30 "market adjacencies" it is trying to tackle, and more new markets in the future, Chambers said.

Copyright © 2009 IDG Communications, Inc.

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