Cisco’s Q2 profit up; signals realignment
Cisco reported second quarter net sales increased 8 percent to $9.8 billion, and net income of $1.9 billion, up 23 percent from last year, but warned the global economy is – and will continue to be – “challenging.” It also announced a major realignment in resources on top priorities, which might include a layoff of up to about 2 percent of the company’s workforce.
Cisco operates in 160 countries and it says the economic downturn is global. During the company’s quarterly conference call with financial analysts, Chairman John Chambers painted a picture of a global economy that is not getting better. Problems that began in the U.S. continue to ripple out worldwide.
In prepared statements, Chambers was upbeat about improved results in many of Cisco’s business segments, but was a touch less sanguine in the conference call, during which he said it is impossible to know when the global economy is going to pull out of the downturn, but said, “The majority of our customers are guessing 2010 while a smaller group sees the upturn towards the end of 2009.”
Chambers said the first markets likely to rebound are China and India, and te next markets to do so are likely to be Mexico, Brazil, Saudi Arabia and Russia, so that is where Cisco will be focusing its efforts.
What that means for Cisco as it moves forward is a possible decrease in Q3 revenue of 15- to 20 percent.
CFO Frank Calderoni said the company “committed a realignment approaching $500 million for the remainder of this fiscal year in existing talent and budget basically to specific opportunities on our top five company priorities which are virtualization, collaboration, video, globalization and Cisco 3.0.” He added, “This is a true realignment and balancing within our portfolio and is not an increase in resources.”
He talked about the possibility of de-emphasizing certain areas of business, but avoided any hint of specifics.
Nor would Chambers discuss specifics, other than to say the company is not currently planning a workforce reduction, but if events do not go as planned, it might end up laying off as many as 1,500 to 2,000 employees out of a total of 67,000.
Cisco frequently uses itself as testbed for new technologies that later get propagated commercially. Chambers announced internal adoption of Web 2.0 technologies – specifically collaboration technologies such as videoconferencing – recently began increasing dramatically.
The company provided few specifics about its service provider business other than to say it was down in almost all geographical markets, but it did veer into some discussion of how opportunities are developing in the retail market for consumer premise equipment, leveraging the old Scientific Atlanta operation.
Cisco SVP of Corporate Development & Consumer Group Ned Hooper said, “I think what we are seeing very simply, and this is driven as we look at all of our strategies by the customer and in this case the consumer, the consumer demand is shifting from point products and point applications to what we refer to as the media enabled home. The ability to connect all of their devices together and be able to share and experience their content and media across all those devices equally. The network is exceptionally well positioned to be able to be the platform to enable that to happen,” Hooper said, according to a transcript provided by Seeking Alpha.
Hooper continued: “When you look at the announcements we made at CES specifically our media hub platform which opens up media for the first time to be shared seamlessly across devices connected to the network both within the home and outside the home as well as our partnership around connected devices and opening up the technology on the network to enable consumer electronics consumers to connect and enable their consumers to connect easily and provision easily to the network. We have the opportunity to really drive that network platform and it really is an architectural approach as we have always talked about.”