Cisco's Chambers: 'We Are Not Immune'
For the second fiscal quarter of 2009, normally resilient Cisco's revenue dropped 7.5 percent year over year to $9.1 billion from $9.8 billion. Chambers said that quarterly dip, coupled with continued market uncertainty, will likely result in a revenue drop of between 15 percent and 20 percent year over year in the third fiscal quarter.
"We are not immune to the challenging economic environment," Chambers said during a conference call discussing the networking giant's second-quarter earnings. "All of us are seeing the same financial and global economic challenges that have accelerated over the last two quarters."
Cisco's quarterly revenue drop fell in line with the 5 percent to 10 percent decline Chambers predicted during its first-quarter earnings call in November.
Cisco's financial state has become a sort of benchmark for much of the IT industry. A quarterly revenue drop for the technology bellwether signifies that companies are not spending on networking gear. That drop in spending is further evidenced by Cisco's quarterly product orders, which decreased 14 percent year over year in the second quarter, while product revenue dropped 11 percent to $7.3 billion in the quarter, with routing and switching sliding 23 percent and 11 percent, respectively, and home networking falling 11 percent year over year.
In the U.S. specifically, orders dropped 18 percent year over year, with enterprise orders down in the high teens, commercial orders down in the low teens and service provider orders down 30 percent. Public sector orders in the U.S., however, rose in the mid-single digits.
Despite the drops, Chambers called it a "solid quarter," especially in the face of the economic downturn.
"It is now clear we are in a global economic slowdown," Chambers said, later adding, "No one, including us, really knows how long it will last."
Chambers said Cisco is continuing its aggressive cost-cutting initiative, which he said will chop $1 billion in operating expenses by the end of fiscal year 2009. Chambers said Cisco now plans to exceed the $1 billion in savings through a continued hiring freeze, corporate travel restrictions and non-head-count-related resource realignment. Additionally, Chambers said, additional realignment can be expected throughout the year, saving roughly an additional $500 million.
Chambers noted that Cisco's realignment is not expected to result in sweeping layoffs, which Chambers said he considers 10 percent or more of the workforce. Instead, Chambers said, throughout the course of the year, Cisco will likely cut between 1,500 and 2,000 jobs as part of Cisco's realignment initiative.
Regardless of cost-cutting and quarterly losses, Chambers said he's confident Cisco will snap back by taking advantage of market transitions, emerging technologies in new markets and by leveraging new categories like Web 2.0 and collaboration. Cisco also expects to continue its charge to be the "end-to-end player" everywhere from the home to the data center.
"We feel very comfortable with our long-term vision," he said, noting that he still sees Cisco's long-term growth goal of 12 percent to 15 percent as attainable, adding that Cisco has historically "navigated very effectively through difficult times."
Hanging its hat on new product announcements and the mainstream adoption of new technologies like TelePresence, collaboration and Web 2.0 technologies will help Cisco pull through, Chambers said.
"We believe this product pipeline ... is the strongest we've ever had," he said, later adding that Cisco is "catching the next wave of business models and productivity."