Cisco Cuts Back as Product Mix Shifts -- WSJ

Date : 05/18/2017 @ 3:02AM
Source : Dow Jones News
Stock : Cisco Systems, Inc. (MM) (CSCO)
Quote : 31.84  -0.02 (-0.06%) @ 8:00PM

Cisco Cuts Back as Product Mix Shifts -- WSJ

Cisco Systems, Inc. (MM) (NASDAQ:CSCO)
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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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