Cisco promises more focus, but sees economic uncertainty ahead

Cisco's fourth quarter was better than expected, but economic worries persist.
Written by Larry Dignan, Contributor

Networking giant Cisco Systems put a troubled fiscal 2011 to bed and CEO John Chambers promised a "focused, agile, lean and aggressive company" in the year ahead.

Cisco reported fourth quarter earnings of $1.2 billion, or 22 cents a share, on revenue of $11.2 billion, up 3.3 percent from a year ago. Non-GAAP earnings were 40 cents a share, two cents better than Wall Street expectations. Overall, Cisco's fourth quarter earnings were down 36 percent from a year ago.

Also: Cisco faces down economic headwinds as fourth quarter report looms

For fiscal 2011, Cisco reported net income of $6.5 billion, or $1.17 a share, on revenue of $43.2 billion.

In recent quarters, Cisco has typically topped Wall Street estimates and then disappointed with its outlook. On Cisco's conference call, CEO John Chambers said recent economic uncertainty could impact IT spending.

As for the outlook, Chambers said Cisco was looking for first quarter revenue growth of 1 percent to 4 percent compared to a year ago. Non-GAAP earnings will be 38 cents a share to 41 cents a share in the first quarter. Wall Street was looking for earnings of 39 cents a share. He added:

We all see the uncertainty in the global markets and the last several weeks have obviously been extremely challenging for the stock market perspective. It is obviously too early to determine the effect on capital spending. Therefore, as you would expect, we will be conservative on our expectations for Q1 and fiscal year 2012.

However, Chambers did highlight some strong areas. He said:

From a geographic point of view in Q4, our four theaters achieved year-over-year order growth, ranging from 9 percent to 19 percent. Our enterprise, service provider, and commercial customer orders grew year-over-year between 15 and 19 percent. However, public sector spending continues to be a challenge, decreasing on a global basis year-over-year by approximately 4 percent. From a key products perspective, routing orders grew 17 percent year-over-year, switching orders 66 percent, and new products grew 11 percent year-over-year.

As for public sector spending, the results are as follows:

  • Global public sector revenue fell 4 percent in the fourth quarter.
  • In the U.S., public sector revenue fell 7 percent.
  • Federal government revenue fell 18 percent in the fourth quarter with state and local falling 2 percent.

Chambers' main theme was that Cisco is a solid company with strong financials that needs to focus. He reiterated that Cisco was well on its way to shaving $1 billion in costs from the business. He added:

Many of our peers are now experiencing the same challenges in network capital spending, the public sector and micro environment. We believe the changes we implemented well ahead of our peers would now be a competitive advantage for us as we go forward in this uncertain macro environment.

By the numbers:

  • Total non-GAAP gross margins were 62.7 percent, with non-GAAP product gross margins at 61.2 percent.
  • Product sales in the fourth quarter were $8.92 billion. Service sales were $2.27 billion.
  • The company generated $2.8 billion in cash flow in the fourth quarter, down from $3 billion in the third quarter.
  • China orders in the fourth quarter were up 26% with India up 7 percent. Brazil grew orders 35 percent in the fourth quarter and Russia topped 50 percent growth.
  • Days sales outstanding in the fourth quarter were 38 days, up from 37 days in the third quarter. Inventory turns in the fourth quarter were 11.8, up from 11.1 in the third quarter.
  • Cisco bought 95 million shares of its stock in the fourth quarter.
  • The company took a restructuring charge of $768 million in the fourth quarter. Of that sum, $453 million were related to early retirement programs; $214 million for severance and $61 million for selling a plant to Foxconn. Another $44 million charge was attributed for exiting Cisco's consumer business.
  • Research and development spending for fiscal 2011 was $5.82 billion, up from $5.27 billion in the previous year.
  • Cisco had $44.6 billion in cash and equivalents at the end of the quarter.


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