Cisco to Pursue Deep Cost Cuts in Corporate Tech-Spending Slowdown
By Maria Armental
Networking-equipment giant Cisco Systems Inc. said it would adjust investment plans and pursue deep cost cuts as customer priorities have shifted during the coronavirus pandemic, which contributed to the company posting the first annual revenue decline in three years.
Cisco, considered a proxy for corporate high-tech hardware demand, on Wednesday reported a 9% sales decline in the most recent quarter and said it would restructure operations, including offering early retirement to workers.
"The pandemic has had the most impact on our enterprise and commercial orders driven by an overall slowdown in spending," Chief Executive Chuck Robbins told analysts on a call. The company, he said, over the coming quarters would cut more than $1 billion in costs on an annualized basis.
Cisco didn't specify the number of positions it would shed but estimated charges of about $900 million before taxes, including about $800 million to be recognized in the current quarter, according to a regulatory filing. The company had indicated layoffs were coming.
The San Jose, Calif.-based company posted a fourth-quarter profit increase of 19% to $2.64 billion, or 62 cents a share. It estimated the restructuring hit to the current quarter's results at 13 cents to 15 cents a share. It said it expects to generate 41 cents to 47 cents a share profit in the quarter with revenue declining 9% to 11%. Analysts surveyed by FactSet have forecast an adjusted profit of 75 cents a share with revenue falling about 7% to $12.23 billion.
Cisco shares fell more than 6% in after-hours trading.
Mr. Robbins, on the call, said the pandemic was giving Cisco a further impetus to focus more research and development spending on cloud-computing activities, including security efforts. "Security continues to be a top priority for our customers, particularly in this distributed digital world," he said.
Cisco has extended free offers and trials for its videoconferencing-service Webex and security offerings as companies moved to remote work during the pandemic. The offerings, company officials said, could deliver a revenue boost in future quarters. "We have begun to see the conversion of free trials into paid subscriptions, " Mr. Robbins said.
More than half of Cisco's revenue now comes from software and services, said Mr. Robbins, who had made the shift away from reliance on equipment sales a priority.
This month, Cisco bought ThousandEyes Inc. to boost its network performance and monitoring across enterprise and into the cloud. "If the pandemic response around the world has taught us anything, it's the timeliness of bringing ThousandEyes and Cisco technology together and providing it in the simplest possible way to our users right now," Todd Nightingale, senior vice president and general manager of Cisco's enterprise networking and cloud business, said in a conference call in May to discuss the acquisition.
Cisco didn't address on Wednesday the status of its proposed acquisition of equipment maker Acacia Communications Inc. The deal was expected to close by the fourth quarter but was still awaiting awaiting regulatory approval in China. The company last month said it was still committed to the acquisition.
Cisco also announced that Chief Financial Officer Kelly Kramer was leaving the company after eight years, though she would remain in her role until a successor is appointed.