CISCO Systems, the biggest maker of computer networking equipment, gave a bullish revenue forecast for the current period thanks to a rebound in orders, but also announced plans to cut jobs as part of a strategy shift.
Sales will be US$13.65 billion to US$13.85 billion in the fiscal first quarter, which ends in October, the company said in a statement on Wednesday (Aug 14). Analysts had estimated a number at the very low end of that range.
The upbeat outlook suggests that Cisco has more of a cushion to overhaul its business. Under chief executive officer Chuck Robbins, the 40-year-old company is recasting itself as a provider of networking services and software, reducing a dependence on one-time sales of hardware gear.
Cisco shares, down 10 per cent this year, gained more than 6 per cent in extended trading following the announcement. They had closed earlier at US$45.44 in regular New York trading.
The job cuts will reduce Cisco’s headcount of 90,400 by about 7 per cent – a loss of more than 6,300 jobs. That will help the company shift priorities and save money, though the cuts will bring short-term costs, according to the statement. Cisco also has been digesting the purchase of Splunk, which it acquired earlier this year.
The cuts will allow the company to “invest in key growth opportunities and drive more efficiencies”, according to the statement. As part of the plan, Cisco expects to record pretax charges of as much as US$1 billion “consisting of severance and other one-time termination benefits, and other costs”.
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Even with the strategy changes, Cisco still counts on installations of new equipment for much of its revenue. On that front, it saw improvement in the latest quarter – a sign corporate customers are investing in their networks again.
“In our fourth quarter, we saw steady customer demand with order growth across the business,” Robbins said in the statement. “We delivered a strong close to fiscal 2024.”
Though revenue declined 10 per cent to US$13.6 billion in the fourth quarter, that beat the US$13.53 billion that analysts had predicted. Profit was 87 US cents a share, minus some items. Wall Street projected 85 US cents.
Cisco reported a 14 per cent gain in orders, a closely watched indicator of future revenue. Orders had been flat in the third quarter compared with a year earlier, excluding the newly acquired Splunk. Without Splunk, orders were up 6 per cent in the fourth quarter, Cisco said.
In the first quarter, profit will be 86 US cents to 88 US cents a share, excluding some items, Cisco said. That compares with a prediction of 85 US cents. For fiscal 2025, revenue will range as high as US$56.2 billion, a projection that’s above Wall Street’s consensus estimate.
The company is trying to persuade investors that new products and services will help Cisco benefit from spending on data centres and artificial intelligence. Unlike some hardware makers, notably Nvidia, the company has not yet been able to point to multiple billions of revenue from that area.
Cisco’s management team has tried to focus investor attention on its deferred revenue, which they say shows the success of a shift from one-time purchases to long-term contracts. BLOOMBERG
