Cisco to Pursue Deep Cost Cuts in Corporate Tech-Spending Slowdown -- Update
August 12 2020 - 6:34PM
Dow Jones News
By Maria Armental
Networking-equipment giant Cisco Systems Inc. said it would
adjust investment plans and pursue deep cost cuts as customer
priorities have shifted during the coronavirus pandemic, which
contributed to the company posting the first annual revenue decline
in three years.
Cisco, considered a proxy for corporate high-tech hardware
demand, on Wednesday reported a 9% sales decline in the most recent
quarter and said it would restructure operations, including
offering early retirement to workers.
"The pandemic has had the most impact on our enterprise and
commercial orders driven by an overall slowdown in spending," Chief
Executive Chuck Robbins told analysts on a call. The company, he
said, over the coming quarters would cut more than $1 billion in
costs on an annualized basis.
Cisco didn't specify the number of positions it would shed but
estimated charges of about $900 million before taxes, including
about $800 million to be recognized in the current quarter,
according to a regulatory filing. The company had indicated layoffs
were coming.
The San Jose, Calif.-based company posted a fourth-quarter
profit increase of 19% to $2.64 billion, or 62 cents a share. It
estimated the restructuring hit to the current quarter's results at
13 cents to 15 cents a share. It said it expects to generate 41
cents to 47 cents a share profit in the quarter with revenue
declining 9% to 11%. Analysts surveyed by FactSet have forecast an
adjusted profit of 75 cents a share with revenue falling about 7%
to $12.23 billion.
Cisco shares fell more than 6% in after-hours trading.
Mr. Robbins, on the call, said the pandemic was giving Cisco a
further impetus to focus more research and development spending on
cloud-computing activities, including security efforts. "Security
continues to be a top priority for our customers, particularly in
this distributed digital world," he said.
Cisco has extended free offers and trials for its
videoconferencing-service Webex and security offerings as companies
moved to remote work during the pandemic. The offerings, company
officials said, could deliver a revenue boost in future quarters.
"We have begun to see the conversion of free trials into paid
subscriptions, " Mr. Robbins said.
More than half of Cisco's revenue now comes from software and
services, said Mr. Robbins, who had made the shift away from
reliance on equipment sales a priority.
This month, Cisco bought ThousandEyes Inc. to boost its network
performance and monitoring across enterprise and into the cloud.
"If the pandemic response around the world has taught us anything,
it's the timeliness of bringing ThousandEyes and Cisco technology
together and providing it in the simplest possible way to our users
right now," Todd Nightingale, senior vice president and general
manager of Cisco's enterprise networking and cloud business, said
in a conference call in May to discuss the acquisition.
Cisco didn't address on Wednesday the status of its proposed
acquisition of equipment maker Acacia Communications Inc. The deal
was expected to close by the fourth quarter but was still awaiting
awaiting regulatory approval in China. The company last month said
it was still committed to the acquisition.
Cisco also announced that Chief Financial Officer Kelly Kramer
was leaving the company after eight years, though she would remain
in her role until a successor is appointed.
Write to Maria Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
August 12, 2020 18:19 ET (22:19 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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