Cisco Cuts Back as Product Mix Shifts -- WSJ
May 18 2017 - 3:02AM
Dow Jones News
By Anne Steele and Rachael King
Cisco Systems Inc. said it would lay off another 1,100 employees
and forecast a drop in quarterly revenue as the networking company
contends with market shifts, including customers favoring software
over hardware.
The fresh round of cuts expands a previous restructuring plan
announced last August to cut 5,500 jobs, or 7% of Cisco's workforce
at the time. According to a company filing, Cisco's head count as
of Jan. 28 -- amid the first round of cuts -- was 71,959.
Shares of Cisco fell 7.4% to $31.33 after hours as the company
also said revenue ticked down in the fiscal third quarter and would
drop more sharply -- by 4% to 6% -- in the fourth quarter.
Cisco, which disclosed the layoffs in its quarterly earnings
report, said it booked charges of $614 million for the first nine
months of the fiscal year and expects to book $150 million to $200
million more during the fourth quarter.
Cisco Chief Executive Chuck Robbins is trying to shift the
business from hardware to software and services. The company is
making gains in areas such as security, but it faces weak customer
spending in its core networking hardware businesses.
In an interview, Mr. Robbins emphasized that he's growing
revenue related to software and subscription businesses. Wall
Street tends to value more highly companies with mostly software
and subscription revenue than hardware companies. "It took me
several quarters to get the team to understand that we're moving
this way," he said.
Regarding layoffs, he said that Cisco's head count is actually
higher than it was when it first announced the restructuring
program last August.
In the Americas, Cisco is facing headwinds in the service
provider and emerging markets, which got worse in the third
quarter. One new issue in the U.S. is the public sector which has
stalled because there's no budget visibility, Chief Financial
Officer Kelly Kramer said on the call with investors.
For the quarter ended in April, Cisco's revenue edged 0.5% lower
to $11.94 billion, as a decline in service revenue more than
outweighed a modest uptick in product revenue. The company earned
$2.52 billion, or 50 cents a share, up from $2.35 billion, or 46
cents a share, a year ago. Excluding certain items, adjusted
earnings rose 3 cents to 60 cents a share.
Analysts polled by Thomson Reuters were looking for an adjusted
58 cents a share on $11.89 billion in revenue.
Total operating expenses were down 8.2% from a year ago as the
company spent less on research and development, sales, marketing
and overhead.
For the final quarter of the fiscal year, Cisco said it expects
adjusted profit of 60 cents to 62 cents a share, compared with the
average analyst estimate of 62 cents.
Write to Anne Steele at Anne.Steele@wsj.com and Rachael King at
rachael.king@wsj.com
(END) Dow Jones Newswires
May 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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