Cisco To Cut $1 Billion In Expenses As Restructuring Continues


Cisco Systems plans to continue its restructuring campaign with more layoffs, cuts in underperforming business units and a plan to remove $1 billion in expenses heading into its fiscal 2012, Cisco's top executives said during the company's downbeat third quarter earnings call Wednesday.

"We know what we have to do," said Cisco Chairman and CEO John Chambers in his opening comments. "We have a clear game plan. We are a company with a track record of constant, market-shaping innovation. We've had to make big changes before and each time we've made these changes, we've emerged even stronger."

Cisco's third quarter results were slightly above expectations. For its fiscal third quarter, Cisco reported sales of $10.9 billion, up 4.8 percent from the $10.4 billion it reported in the year-ago quarter, and just ahead of Wall Street estimates of $10.86 billion. Gross margins fell to 61.3 percent from 63.9 percent a year earlier. Cisco's quarterly profit was $1.8 billion, down 17.6 percent from the year-ago quarter profit of $2.2 billion.

Cisco will continue to see some weakness in its fourth quarter as its corporate restructuring continue and Cisco continues "hard work behind the scenes," Chambers said. Specifically, Cisco expects fiscal Q4 revenue to be between flat and up 2 percent from a year ago, which would put the figure in the $10.84 billion to $11.02 billion range and below Street estimates of $11.67 billion.

In his comments, Chambers struck a notably different tone than the optimistic, cheerleading persona regular Cisco observers are used to. He also backed off Cisco's often-described annual growth targets of 12 to 17 percent.

Cisco has gone on the defensive following several quarters of disappointing earnings reports and steady declines in businesses such as switching and consumer products. Among a number of recent Cisco headaches, the company has seen ongoing, high-profile executive departures as it changes its corporate structure.

In April came a candid memo from Chambers admitting that Cisco had disappointed investors, confused employees and lost credibility in the marketplace, portending changes ahead for the networking titan.

Some changes have already happened. In recent weeks, Cisco shuttered its Flip video camera business as part of a restructuring of its consumer unit, and confirmed organizational changes that included cutting down on Cisco's much-maligned structure of internal boards and councils.

More changes are coming, according to Cisco's top executives. Cisco recently launched an early retirement program for eligible CIsco employees, similar to one Cisco provided in 2009. There will also be layoffs.

"We do anticipate a workforce reduction affecting both our full-time and contractor workforce," said Gary Moore, who was named Cisco's chief operating officer in Feburary, and was making his first appearance on Cisco's quarterly earnings conference call.

NEXT: Cisco's Strengths, Weaknesses In Q3