Cisco promises more focus

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

For fiscal 2011, Cisco reported net income of US$6.5 billion, or US$1.17 per share, on revenue of US$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 that recent economic uncertainty could impact IT spending.

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

"We all see the uncertainty in the global markets and the last several weeks have obviously been extremely challenging for the stock market perspective," Chambers said. "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.

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

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

• Global public sector revenue fell 4 per cent in the fourth quarter
• In the US, public sector revenue fell 7 per cent.
• Federal Government revenue fell 18 per cent in the fourth quarter, with state and local falling 2 per cent.

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

"Many of our peers are now experiencing the same challenges in network capital spending, the public sector and micro environment," he said. "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 per cent, with non-GAAP product gross margins at 61.2 per cent.
• Product sales in the fourth quarter were $8.92 billion. Service sales were US$2.27 billion.
• The company generated US$2.8 billion in cash flow in the fourth quarter, down from US$3 billion in the third quarter.
• China orders in the fourth quarter were up 26 per cent, with India up 7 per cent. Brazil grew orders 35 per cent in the fourth quarter, and Russia topped 50 per cent growth.
• Day 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 US$768 million in the fourth quarter. Of that sum, US$453 million were related to early retirement programs; US$214 million for severance and US$61 million for selling a plant to Foxconn. Another US$44 million charge was attributed for exiting Cisco's consumer business.
• Research and development spending for fiscal 2011 was US$5.82 billion, up from US$5.27 billion in the previous year.
• Cisco had $44.6 billion in cash and equivalents at the end of the quarter.

Via ZDNet US