Cisco Systems Inc.: Networking It Out

Nov. 12, 2008
Company's positive sales numbers overshadowed by a weak outlook for the quarters ahead.

The financial crisis is forcing most companies to look at their quarterly performances with a whole new perspective. When computer networking equipment maker Cisco Systems Inc. reported first-quarter fiscal 2009 earnings on Nov. 5, relatively positive sales numbers were overshadowed by flat quarterly profits and a somewhat bleak outlook for the quarter ahead.

Cisco's CEO John Chambers said in a conference call that the IW 50 Best Manufacturer for 2008 expects revenue for the second quarter of fiscal 2009 to decline 5% to 10% compared with the same quarter a year earlier.

According to a story on Bloomberg, Cisco's business, like many others, changed course after the credit crunch hit, pushing its October orders down 9%. During the conference call, Chambers laid out the companys plans to save $1 billion over the next three quarters, which involve a reduction in hiring, business travel and relocations.

Despite the predictions, this quarter's results still offered some points of encouragement. For example, Cisco reported an 8% jump in net sales to $10.3 billion and a 5.7% rise in earnings per share from the first quarter of fiscal 2008. And as far as Chambers is concerned, the company's revenue and earnings growth were both solid, in what is "clearly a very challenging global economy."

"Our strategy and focus for managing the business through this market transition is clear -- we will manage and prioritize our resources, invest in innovation, and build even stronger relationships with our customers to help enable their success," he added.

According to CFO Frank Calderoni, growth in Cisco's modular and fixed switching portfolio drove an 8% increase in switching revenue, while routing revenue rose 1% and revenue from advanced technologies grew 17% year-over-year. Total service revenue was up 10%, with advanced services up approximately 15%.

Cisco Systems Inc.
At A Glance

Cisco Systems Inc.
San Jose, Calif.
Primary Industry: Computers & Other Electronic Products
Number of Employees: 61,535
2007 In Review
Revenue: $34.9 billion
Profit Margin: 21.00%
Sales Turnover: 0.65
Inventory Turnover: 9.35
Revenue Growth: 22.60%
Return On Assets: 16.93%
Return On Equity: 30.67%

"Cisco's solid financial performance for the first quarter reflected the company's ability to maintain profitability during a period of uncertainty," Calderoni said. "With a focus on making calculated investments in strategic areas, continued prudent expense management, and a historical strength of effectively managing our financial position, we believe Cisco is well positioned to manage our business model going forward."

The day after earnings were released, Cisco announced plans to invest $100 million to bolster sales to small businesses, which it sees as an opportunity to expand sales of routers, switches, and other equipment to companies with less than 100 employees, the Reuters news service reported.

The $100 million investment will be used to set up dedicated call centers to assist small businesses, the company said, adding that it will also create a dedicated sales group and work more closely with its routing unit Linksys to focus on small business needs.

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