September 13, 2011 7:45 pm

Cisco revitalised by sweeping reorganisation

Cisco Systems executives forecast annual earnings growth of about 8 per cent over the next three years as it seeks to rebound from a drastic restructuring that saw more than 12,000 people leave the company.

In presentations to investors at the company’s San Jose headquarters on Tuesday, Cisco executives said sales should increase by 5 to 7 per cent annually and profit by 7 to 9 per cent.

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“We feel that we are turning the corner” said chief financial officer Frank Calderoni. Cisco stock rose more than 2 per cent in afternoon New York trading, having slid by a third in little more than a year on concerns about the company’s trajectory.

Chief executive John Chambers, who for years had projected 12 to 17 per cent long-term profit growth, said the company was leaner after an overhaul launched five months ago and more focused on beating the competition with core routing and switching products. He predicted that Cisco would gain market share while increasing profitability.

“I feel very good about where we are” in those two markets, he said, despite pricing pressure from the likes of Huawei and Hewlett-Packard “We have made all our changes”.

The upbeat presentations follow a stronger than expected quarter ended in July, where sales rose 3 per cent to $11.2bn, Cisco now expects three years of annual market growth in routers of 5 to 7 per cent by revenue and in switches of 2 to 4 per cent.

The company will do better than those rates while increasing its more profitable services business, Mr Chambers said.

He also said that large customers were moving away from buying individual product lines and toward integrated purchases. Cisco performs well in those instances because of its software architecture, he said.

“We gained a few inches around the waist”, said Gary Moore, Cisco’s chief operating officer. “We were losing in the marketplace” because the company was too hard to deal with. Mr Moore said that the sales force was misaligned, with an excessive 30 per cent stationed in the head office, and that engineering effort was wasted as teams from different groups competed with each other.

The most visible part of a realignment that affected 23,000 people and cut $1bn in annual costs came as Cisco backed off from its consumer push, cancelling the Flip video camera it acquired with the 2009 purchase of Pure Digital for $590m.

Mr Moore said Cisco had stopped investing in 10 areas as it upped its effort in video and collaboration tools and data centre offerings that combine networking with storage and computing power.

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