Cisco posts small revenue gain amid restructuring

Cisco Systems has completed most of a major restructuring that began early this year, and yesterday posted revenue and profit for its fiscal first quarter that exceeded analysts' expectations.

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Cisco Systems has completed most of a major restructuring that began early this year, and yesterday posted revenue and profit for its fiscal first quarter that exceeded analysts' expectations.

For the quarter ended October 29, Cisco reported revenue of $11.3 billion, up 4.7% from a year earlier, and net income of $1.8 billion, or $0.33 per share. Earnings per share fell 2.9% from the year earlier.

Not counting certain one-time items, Cisco had net income of $2.3 billion, or $0.43. The results were in line with the consensus of expectations from analysts polled by Thomson Financial, who forecast earnings of $0.39 per share on revenue of $11.02 billion.

The report was the first since Cisco set a new long-term growth forecast at a financial analyst conference in September. The company now expects between 5-7% annual revenue gains over the next three years, following several quarters of disappointing results and a major reorganisation. It expects earnings per share to increase between 7-9% per year.

In a press release yesterday, CEO John Chambers said a majority of the company's reorganisation was complete.

Cost-cutting

In its fiscal fourth-quarter report released in August, Cisco had posted a drop of more than one-third in net income and an increase of only 3.3% in revenue from the year-earlier quarter.

Since early this year, the company has moved to sharpen its focus on five key areas of its business: core routing and switching, collaboration, data-centre virtualisation, video, and tying these elements together in an overall architecture.

For the current fiscal quarter, Cisco expects revenue to grow between 7-8%.

On a conference call with financial analysts after the report, Chambers painted the results as proof Cisco is executing well on the plans outlined at the September conference.

"Our strategy and vision outlined in our three-year plan is taking hold and off to a very good start," Chambers said. The company said it is on track to complete all the cost-cutting it has planned by the end of the third quarter of this fiscal year.

Asked about Huawei Technologies' recent move to establish sales channels for its enterprise-network equipment in the US, Chambers said China's largest networking vendor is a long-term threat here. Cisco already calls Huawei its biggest rival worldwide in the next few years.

Huawei rivalry

"We're going to make it very hard on them in the US," Chambers said. "They're going to be around four to five years from now."

Total switching orders grew 10%, with flat revenue, and routing orders went up 7%, with revenue down slightly. But Cisco's fledgling data-centre business, built around its UCS (Unified Computing System) server platform, grew 122% in orders and 116% in revenue, Chambers said. In the first quarter, Cisco gained 1,572 new UCS customers, bringing the total to 8,983, he said.

Orders rose 12% in the Americas, 13% in Europe, the Middle East and Africa, and 13% in the Asia-Pacific region. Cisco was surprised by the strength of European markets, given the financial upheavals there, though Chambers said results in Southern Europe were weaker than elsewhere. For the current quarter, the company expects orders to grow by less than 10%.

Orders fell 24% in India but grew 43% in Japan, which Chambers partly attributed to Cisco's strong response to customers in the wake of the earthquake and tsunami there earlier this year.

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