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Shares of Cisco Systems fell Wednesday after hourly trading after the company posted a weaker-than-expected outlook for the company’s current quarter ending in October.
For the fiscal fourth quarter ended July 25, the network giant posted revenue of $ 12.2 billion, down 9% from a year ago. That was within the company’s guidance range of 8.5% to 11.5%, and slightly above the Wall Street analyst’s consensus of $ 12.1 billion. Adjusted, as non-GAAP, earnings were 80 cents per share, down 4% from a year ago, but above the Street forecast of 74 cents and ahead of the company’s lead range of 72 cents to 74 cents.
Cisco (ticker: CSCO) said product revenue in the quarter was up 13% while service delivery was flat. Revenues were down 12% in the Americas, 6% in EMEA (Europe, Middle East and Africa), and 7% in APJC (Asia-Pacific, Japan and China). Security revenue was up 10%, but Infrastructure Platforms revenue was down 16% and application revenue was down 9%. The company did not repurchase a stock during the quarter.
For the current October quarter, Cisco sees revenue decline from 9% to 11% from a year ago, implying a range of $ 11.7 billion to $ 12 billion, below the current Street Consensus forecast of $ 12.25 billion. Cisco sees gains without GAAP for the quarter ranging from 69 to 71 cents a share, and falls short of consensus at 76 cents.
The company also announced that CFO Kelly Kramer plans to retire, but will remain until a successor is named.
“By the end of fiscal 2020, we have achieved our goal of more than half of our revenue from software and services, and this strategy will continue to resonate with customers as they digitize their organizations,” CEO Chuck Robbins said in a statement. “As we focus on the future, we balance our R & D investments to focus on new areas so that we can continue to offer the best, most relevant technology in simpler, easier-to-consume ways.”
Robbins indicated at the call of the post-earnings conference that the company plans to cut costs by about $ 1 billion in the next few quarters.
In an interview with Barron this afternoon, Kramer confirmed that cutting costs will involve some reduction in work, but that she hopes a substantial portion of it will be in the form of employees accepting voluntary early retirement.
Asked about the disappointing guidance for the quarter, she notes that the old Street Consensus had anticipated a slight improvement in conditions in the current quarter, but that “the environment has not really improved.”
Kramer adds that very large companies continue to invest in their infrastructure, but the company is seeing slower activity from small and medium-sized customers.
On the subject of the company’s plan to spend more aggressively on new business areas, Kramer said that could include a substantial commitment to purchasing. She notes that the company expects to continue to spend about $ 3 billion a year on buying other companies, in addition to spending about $ 6 billion a year on R&D.
Kramer confirmed that the company decided not to repurchase shares in the last four years, but she says Cisco expects to repurchase shares in the current quarter. She notes that the company has historically acquired about $ 1 billion a quarter in inventory.
Asked about the WebEx video conferencing business, Kramer said it grew double digits in the quarter, adding that WebEx sees better-than-expected conversion of free trials into paying customers. “It’s progressing very well,” she said.
Cisco is down 6.5% in late trading, to $ 45.
Write to Eric J. Savitz by [email protected]
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