Cisco Q4 strong; CEO Chambers confident, but job cuts loom

Summary:CEO John Chambers noted that the company posted records for earnings and revenue and customers are seeing Cisco as an architecture partner. But to hit its numbers in the quarters ahead, Cisco will cut 4,000 employees.

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Cisco Systems delivered a strong fourth quarter as expected and CEO John Chambers added that his confidence in "our ability to be the #1 IT Company is increasing."

The company reported fourth quarter earnings of $2.3 billion, or 42 cents a share, on revenue of $12.4 billion. Non-GAAP earnings for the fourth quarter were 52 cents a share.

According to Thomson Reuters, Cisco is expected to report fourth quarter earnings Wednesday of 51 cents a share on revenue of $12.4 billion.

It's worth noting that Cisco estimates crept higher leading up to the results.

In a statement, Chambers noted that the company posted records for earnings and revenue and customers are seeing Cisco as an architecture partner.

On a conference call with analysts, Chambers said that Cisco is "leading many of the technology transitions in the market which are increasing in pace." These transitions put the network in the center of cloud, mobility, bring your own device and security.

Chambers added that Cisco's data center business grew revenue more than 40 percent in the fourth quarter. Enterprise sales were up 9 percent in the U.S., but in Asia Pacific, Japan and China orders were down 3 percent. Chambers said:

Along with economic challenges impacting several of our top five emerging markets, last quarter I described a continued slow recovery and I haven't seen anything to suggest that this dynamic will change in the short term. But this recovery is more mixed and inconsistent than the others I have seen.

For fiscal 2013, Cisco reported earnings of $10 billion, or $1.86 a share, on revenue of $48.6 billion, up 5.5 percent from a year ago.

As for the outlook, Cisco said it expects a "slow inconsistent recovery" with revenue growth of 3 percent to 5 percent in the year ahead. For the first quarter, Cisco expects non-GAAP gross margin to be 61 percent to 62 percent with earnings per share on a non-GAAP basis to be 50 cents a share to 51 cents a share.

Wall Street is expecting first quarter earnings of 51 cents a share on earnings of $12.45 billion.

To hit its numbers, Cisco said it will lay off 4,000 workers or 5 percent of its global workforce.

Why would Cisco cut jobs when it's performing well. Chambers said it's all about speed and quick decisionmaking as well as sticking to its financial model. Chambers explained:

The environment in terms of our business is improving slightly but nowhere near the pace that we want. You know what product orders have done minus the acquisition and spinouts because that gives you a feeling for what our growth is going to be and those will bump them up or down. It's just not growing at the speed we want. The inconsistency of global GDP growth and lots of time you see northern Europe start to get stronger, you see the issues in emerging markets start to get softer. You see us successful in one category switching and you see us not as successful except in the edge in terms of the routing.

Now if we are going to lead in this industry, the one thing I have learned over the years is you have to be the first mover. We have to very quickly reallocate the resources. A fair amount of that 4,000 people will be allocated to new growth opportunities.

We were very pleased with how we have made progress the last two years on speeding up decisions and today's marketplace---they are almost up exponentially on how quickly not only decisions have to be made but how quickly you implement those. Those need to be done with small teams. We just have too much in the middle of the organization.

It's all about speed of pace in this new industry which we intend to balance. We make commitments on a financial model which we are absolutely sticking to...Every well-run business in the world grows and keeps business expenses in line...This is just good business management and I have learned in this industry you lead with your mind, not with your heart.

The networking giant had $50.6 billion in cash, equivalents and investments at the end of the quarter.

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By the numbers:

  • Cisco spent $5.94 billion on research and development in fiscal 2013.
  • Fourth quarter product revenue was $9.74 billion, up from $9.15 billion a year ago. Service revenue was $2.68 billion, up from $2.54 billion a year ago. .
  • Inventory as of July 27 was $1.48 billio, down from $1.66 billion a year ago.

 

Topics: Networking, Cisco, Data Centers

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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