Cisco highlights uncertainty as sales and profit fall

Cisco Systems' revenue and net income for its fiscal second quarter fell from a year earlier, however, the company did meet Wall Street analysts' expectations for revenue and for earnings not counting special items.

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Cisco Systems' revenue and net income for its fiscal second quarter fell from a year earlier as the company grappled with the global economic downturn.

Revenue for the quarter ended 24 Jan. was $9.1 billion, down 7.5 per cent from the second quarter of fiscal 2008. Profit fell even more steeply, with net income hitting $1.5 billion, down 27 per cent from a year earlier.

Cisco earned $0.26 per share, down more than 20 percent from the earlier quarter.

However, the company did meet Wall Street analysts' expectations for revenue and for earnings not counting special items. Analysts surveyed by Thomson Reuters had expected revenue of $9 billion and earnings of $0.30 per share.

"Cisco showcased solid financial strength during a period of significant economic challenge," Chairman and CEO John Chambers said in a press release.

"We remain comfortable with our long-term vision and strategy as we move into new market adjacencies and prioritise our existing opportunities."

The gloomy results come after a string of major IT companies reported losses or dramatic revenue and profit falls for periods coinciding with the stock-market and credit crash last year.

Cisco sees hard times continuing for the near future, forecasting revenue for the current quarter to be down between 15 percent and 20 percent from a year earlier, Chambers said. Business slowed during the second quarter and finally was down 20 percent year-over-year in January, he said.

"The environment has continued to change dramatically in the last few months," Chambers said. "It is clear now that we are in a global economic slowdown. ... (Cisco) will obviously be impacted."

The company is not considering layoffs today, Chambers said, defining that as a cut of 10 percent or more of the workforce. But as the company goes through normal realignment of resources, that could result in job reduction of 1,500 to 2,000 in the near term, he said. Overall, Cisco is ahead of its plan to cut expenses by $1 billion per year, Chambers said.

Priority is going to Cisco's top five opportunities, which the company will make sure are funded, according to Chambers. Those are next-generation company and customer relations, dubbed Cisco 3.0; collaboration and Web 2.0; video; datacentres and virtualisation; and globalisation, he said.

The company will also continue a plan to invest in emerging economies, with China and India in the first wave of that strategy and Mexico, Brazil, Saudi Arabia and Russia coming in a second wave, Chambers said.

The CEO said most executives he talks to don't expect a recovery until 2010, but he is more optimistic. The US and other governments have generally responded well to the world financial crisis, Chambers said, giving him hope for a possible upturn before the end of this year.

The recovery will begin in the US, and the rest of the world will follow, he believes.

"President Obama's off to a great start, and I think his economic team is world-class," Chambers said.

The quarter's results did vary by country, with order growth of more than 10 per cent in Mexico, Germany, Austria and Switzerland, and particularly steep drops in orders in the US, the UK, Italy and Russia, Chambers said.

Routers were the hardest-hit product category in the quarter, with revenue down about 23 per cent, while video equipment revenue was a bright spot with 18 per cent growth.

In after-hours trading late Wednesday, Cisco's Nasdaq shares (CSCO) were down $0.72 at $15.12.