Cisco issues warning on profit and sales

Cisco Systems warned that sales and profit in the current quarter would fall below expectations and announced it would take a charge of up to $1.1bn next quarter to cover the cost of reducing its headcount, as it seeks to retrench amid mounting competition.

Cisco third-quarter results to April 30 2011
SalesNet profitEarnings per shareDividend
$10.9bn$1.8bn33 cents6 cents

The top maker of networking gear by sales said on Wednesday that the headcount reductions, which will include further job cuts in the next six months, are part of a new commitment to reduce annual operating expenses by $1bn annually, as revenue growth slows and profit margins come under pressure from Huawei, Hewlett-Packard and others.

The announcements came as Cisco reported fiscal third-quarter profit and sales that were in line with expectations, but warned that revenue in the current quarter would be flat to 2 per cent higher from a year earlier.

The fiscal fourth quarter is usually Cisco’s strongest, but John Chambers, chief executive, said the company would be distracted as it works through a more intense phase of reorganisation.

In the quarter that just ended, Cisco’s net income fell 18 per cent to $1.8bn, or 42 cents a share on a pro forma basis, as sales increased 5 per cent to $10.9bn.

Cisco shares dropped more than 3 per cent in after-hours trading. Analysts were concerned about the 9 per cent fall-off in switching revenue from a year earlier, and Mr Chamber said this market and the continued slide in sales to the public sector were the two most pressing issues.

Executives said they would continue to fight to maintain share in switching at lower prices, in a bid to gain related storage, computing and services deals.

Cisco recently appointed a chief operating officer, shuttered the Flip consumer video camera business and reshuffled the sales, engineering and services teams.

It has also done away with a cumbersome array of cross-departmental executive panels that signed off on new initiatives.

Frank Calderoni, Cisco chief financial officer, said in an interview with the Financial Times that additional charges for the involuntary headcount reductions would come in the fiscal first quarter, with more charges possible after that.

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