Cisco Cuts Forecast, Costs5:27 PM EST Wed. Nov. 05, 2008
Cisco Systems chairman and CEO John Chambers said he expects the "challenging global economy" to hit the networking giant hard into the second quarter.
Calling it the "second most difficult time in my career" to provide a quarterly guidance, Chambers said he expects Cisco's revenue to decrease between 5 and 10 percent year-over-year in the second quarter, mainly due to a drop in technology spending amid a shaky economic environment.
The guidance, Chambers said, assumes that the revenue challenges Cisco and the industry are facing as a whole will continue. To tackle the economic turbulence head-on, Chambers said Cisco plans to reduce fiscal year 2009 expenses by more than $1 billion by realigning resources, implementing a hiring freeze and further cutting the amount of business travel within the San Jose, Calif.-based company.
"All of us are seeing the same financial and global economic challenges that others have reported, especially in October," Chambers said Wednesday during a conference call to discuss the company's 2009 fiscal first-quarter financial results.
Part of the reason for the expected revenue drop, Chambers said, was the dramatic variance between product orders from August to October. Chambers said in August, product orders grew 7 percent year-over- year, while in October product orders dropped 9 percent year-over-year. Overall orders were down 8 percent in the U.S. year- over-year, and U.S. enterprise orders were down in the "high teens," Chambers said.
Despite the bleak outlook, Chambers said Cisco remains comfortable that it will realize its 12 percent to 17 percent long-term growth projection, assuming the global economy turns around.
"We certainly feel very comfortable," he said, later adding that Cisco's "vision of how the industry is going to evolve appears to be playing out very much as we expected."
Chambers said Cisco plans to attack the market slowdown by continuing its vision strategy and execution model; focusing strongly on collaboration and Web 2.0 technologies; bulking its investments in the U.S. and select emerging companies; and continuing its message that the network is the platform to drive communications and IT.
Overall, for the quarter ended Oct. 24, Cisco posted $10.3 billion in revenue, an 8.1 percent increase over the same quarter a year ago, marking Cisco's second straight $10 billion quarter. Additionally, Cisco reported earnings of $2.2 billion, or 37 cents per share, a slight dip of 0.2 percent from the same quarter one year ago.
"Cisco delivered solid revenue and earnings growth in what is clearly a very challenging global economy," Chambers said.
During the first quarter, Cisco's year-over-year product revenue grew by 8 percent for switching, 1 percent for routing and 10 percent for services. The first phase of advanced technology saw 15 percent overall revenue growth, with 22 percent growth for unified communications, 21 percent growth for wireless, 19 percent growth for security and decreases of 2 percent and 4 percent for networked home and storage, respectively. In the second phase of advanced technology, Cisco saw 22 percent growth overall, with 25 percent growth in application network services and 21 percent growth in video systems.