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Cisco warns of revenue miss
May 11, 2011 / 8:14 PM / in 6 years

Cisco warns of revenue miss

BOSTON/NEW YORK (Reuters) - Cisco Systems Inc warned that this quarter will be even worse than Wall Street’s already low expectations and it laid out plans for global job cuts as it struggles to revive growth.

<p>A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California February 3, 2010. REUTERS/Robert Galbraith</p>

Shares of Cisco fell 3 percent after CEO John Chambers, who admitted last month that the Silicon Valley bellwether had lost its way, also cautioned that Cisco’s fiscal year 2012 will not live up to the company’s previous growth expectations.

The company is planning layoffs around the world as it looks to cut annual expenses by $1 billion in order to bring its costs more in line with its growth pace, Chambers told analysts on a Wednesday conference.

He promised that most of the cut backs would be done by the end of the company’s fiscal first quarter and that employees hurt by the layoffs would know by the end of the summer.

“Cisco is a very strong company in a healthy market with a few problematic areas,” Chambers said.

But his optimism failed to impress shareholders who sent shares of the world’s biggest networking equipment maker down in late trade after the weak guidance despite an initial lift after the company posted a quarterly earnings surprise.

“Cisco is in a period of transition. There’s a very negative camp that believes that Cisco is in a long decline ... which is why the stock is so inexpensive,” said Evercore Partners analyst Alkesh Shah.

The results come as Chambers works to turn around the Silicon Valley bellwether.

Since the rare admission, he has trimmed the company’s bloated management structure, offered early retirement to some employees, killed the Flip camcorder and laid off 550 workers. Chambers said he would decide on the next round of lay-offs very quickly.

“Each time we’ve done this in the past, we’ve done it crisply and emerged out of it stronger. ... We want to do it surgically instead of with a blunt instrument,” he said. “We were all here for the last couple of weeks, 9:30 at night, although the pizza wasn’t too good.”

The executive noted that he would make the severest cutbacks in units where Cisco has not succeeded in becoming a market leader or at least second best.

Cisco warned that overall fourth-quarter revenue would be flat to just 2 percent higher than a year earlier implying a guidance range of $10.84 billion to $11.05 billion, below analyst expectations for $11.59 billion, according to Thomson Reuters I/B/E/S.

Its shares slid 1 percent to $17.72 after rising as much as 4.2 percent to $18.53 from a Nasdaq close of $17.78.

ZEROING IN ON SWITCHES

During the conference analysts grilled Chambers about his plans for reviving his bread-and-butter business of selling the plumbing of the Internet and corporate networks. They zeroed in on its switching business, where sales fell 9 percent in the third quarter after sliding 7 percent in the second quarter.

Chief Financial Officer Frank Calderoni told Reuters that he could not say when Cisco’s switching business would return to growth.

Before the company gave out weaker than expected guidance investors had been cheering stronger than expected results.

The company reported profit, excluding items, of 42 cents per share, for the fiscal third quarter ended April 30, beating the average analyst forecast of 37 cents, according to Thomson Reuters I/B/E/S.

“This relieves a bit of investor concern in the near term,” said Gleacher & Co analyst Brian Marshall. “While April results look decent relative to expectations, we’ve longer-term issues the company needs to address.”

It delivered a non-GAAP gross margin of 63.9 percent, ahead of its forecast of 62 to 63 percent.

Net income fell to $1.8 billion, or 33 cents per share, from $2.2 billion, or 37 cents per share, a year earlier.

Reporting by Jim Finkle, Sinead Carew; Writing by Edwin Chan; Editing by Richard Chang, Robert MacMillan and Bernard Orr

Our Standards:The Thomson Reuters Trust Principles.
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