As posted in the Wall Street Journal:
A 27% drop in quarter-on-quarter profit is not what Cisco System Inc. nor their shareholders were hoping for but that is the most recently posted figure for the networking giant. The announcement comes in the midst of large-scale cutbacks in business technology spending on networking services, colocation services, and data centers.
The big Silicon Valley maker of networking gear said revenue fell 7.5% in its fiscal second quarter, which ended Jan. 24. It also signaled that conditions had worsened, predicting revenue in the current period could drop 15% to 20% from a year earlier.
"It is now clear that we are in a global economic slowdown," Chief Executive John Chambers said Wednesday in a call with analysts. He said it is difficult to make an accurate prediction given the current economic climate, but added that "we will obviously be impacted."
The San Jose, Calif., company is one of the first to report earnings that include January, and its results are a closely watched barometer of corporate technology spending.
Overall, Cisco's orders for the second quarter shrank 14%, but in January orders were down 20% from a year ago.
Cisco's corporate customers have steadily cut the amount they have spent on networking and colocation technology over the last year, though some of those losses have been offset by phone and cable companies, which have bought Cisco gear in order to keep pace with increasing Internet traffic. But in the January quarter these U.S. companies placed 30% fewer orders than the year-ago quarter, Cisco said.
"No one is looking for a turnaround yet," said Jeff Evenson, an analyst at Sanford C. Bernstein & Co. He added that Cisco appears to be doing a good job of controlling its costs, which offsets the decline in sales.
Mr. Chambers has pledged to reduce Cisco's spending by $1 billion this fiscal year by implemented a hiring freeze, reducing travel and similar measures. On Wednesday, Mr. Chambers said some job cuts are likely, though not across-the-board layoffs.
Despite the recession, Cisco has continued to move into new markets. Examples include consumer-electronics, such as a home speaker system unveiled in January, and Cisco is believed to be developing a server system that would take it for the first time into the computer business.
Cisco ended the quarter with about $29.5 billion in cash, and Mr. Chambers has said he sees the downturn as a chance to expand.
Cisco has also used its cash to help finance purchases for its customers. The company says that it provided $2.1 billion in financing for its customers in first half of 2009.
Cisco reported net income in the second quarter of $1.5 billion, or 26 cents a share, down from $2.06 billion, or 33 cents a share, a year earlier. Revenue declined to $9.09 billion from $9.83 billion.
