Cisco Revenue Forecast Disappoints

Cisco Revenue Forecast Disappoints

Cisco gave a disappointing sales forecast that underscores the challenges facing its multibillion-dollar hardware business during an industry shift toward cheaper, software-based networking, according to Bloomberg.

Revenue in the current period may decline as much as 6 percent from a year earlier, the company said in a statement. That indicates sales of as little as $11.9 billion, far short of the average analysts’ projection of $12.5 billion. Cisco also said it’s cutting an additional 1,100 jobs on top of the 5,500 it announced in August. The shares tumbled in late trading.

CEO Chuck Robbins is trying to recast Cisco as a provider of networking services, seeking to reduce its dependence on hardware by offering more software and cloud-based products that provide predictable revenue. During the transition, the company faces slowing demand for the high-priced combinations of hardware and software that make up the bulk of its business, in part because corporate customers have been spending less on in-house data centers.

Robbins has been making acquisitions to arm Cisco with new capabilities for the shift to software and services. Earlier this month, he agreed to spend $610 million to buy startup Viptela, which will add products to help companies such as Verizon offer software-managed networking services over long distances. Cisco, which has $68 billion in cash, is also open to making much larger acquisitions if that would help its transition, Robbins said in an interview.

The networking-gear maker hasn’t reported an annual revenue gain of more than 10 percent since 2010. Sales have declined from a year earlier for the past six straight quarters. Last year, the company said it was trimming its workforce by 7 percent in a restructuring aimed at chasing faster-growth markets.

Profit before certain items in the third quarter, which ended April 29, was 60 cents a share. Sales fell less than 1 percent to $11.9 billion, Cisco said in a statement. Sales in Cisco’s biggest business, switching, rose 2 percent in the third quarter to $3.49 billion. Revenue from routing, the second-largest unit, dropped 2 percent to $2.03 billion. Collaboration, which includes videoconferencing, fell 4 percent to $1.02 billion, and data-center sales declined 5 percent to $767 million. Net income in the fourth quarter, which ends in July, will be 46 to 51 cents a share.