Cisco Completes Restructuring, Reports Solid First Quarter
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Cisco Systems has spent much of the past year undergoing a gut-wrenching reorganization that has included shedding business units and more than 8,000 jobs in an effort to streamline the company after several quarters of difficult financial results.
In announcing the networking giant's fiscal year 2012 first-quarter financial numbers Nov. 9, Cisco CEO John Chambers said the bulk of the reorganization is completed, and now the company is putting its focus on expanding its presence in areas that executives have identified as growth markets, including the data center, cloud computing, collaboration, video, and core switches and routers.
In addition, Cisco (NASDAQ: CSCO) is pursuing the long-term growth objectives outlined to financial analysts in September of revenue increases of between 5 and 7 percent over the next three fiscal years.
For the first quarter, Cisco exceeded analyst estimates, with revenue growing 5 percent over the same period last year to $11.3 billion. At the same time, net income fell to $1.8 billion, an 8 percent drop. Chambers said Cisco is forecasting revenue increases of 7 to 8 percent in the next quarter.
Cisco spent much of 2010 and into 2011 dogged by disappointing financial results and lowered forecasts. Analysts questioned whether Cisco's expansion into new business sectors caused the company to lose focus on its core businesses, particularly switches and routers, enabling rivals like Hewlett-Packard bolstered by its acquisition of 3Com and Juniper Networks to make inroads in the networking space.
The situation prompted Chambers to issue a lengthy memo to employees about changes that were in the offing to get the company back on its feet. Soon after, Cisco shut down the bulk of its consumer business, including shuttering its profitable Flip video camera unit, and later streamlined its sales, services and management units.
In May, Chambers warned that more streamlining was needed, which would include job cuts, in an effort to save $1 billion in expenses. Those cuts were announced in July.
Chambers said during a conference call with analysts and journalists Nov. 9 that the company is stabilizing and is seeing growth in many of its business units and in many regions around the world. For example, the company's data center business saw 107 percent revenue growth, due in large part to growth in its Unified Computing System (UCS), a converged data center appliance that offers not only Cisco server and networking technology, but also storage from EMC and virtualization from VMware.
Cisco added 1,572 new UCS customers in the quarter, bringing the total number of UCS customers to almost 9,000.
Like other top-tier tech vendors such as IBM, Dell and HP, Cisco is looking to grow beyond being a company that simply sells individual products and into one that sells complete enterprise solutions, from data center offerings to collaboration and video products, and offers the services to bring all that together.
Chambers said Cisco saw product orders grow between 12 percent and 13 percent in all regions throughout the world. However, he also warned that going forward, the shaky economic situations in Europe and elsewhere, as well as the flooding issues in Thailand, will continue to be points of concern for Cisco and others.
"Europe will be a challenge for us in the next quarter, as it will be for others," Chambers said.