(Bloomberg) – Shares of Cisco Systems Inc. danced Thursday after the company issued an unfortunate sales forecast, signaling that companies are spending less in the pandemic-driven recession.
Chief Executive Officer Chuck Robbins promised to reduce spending by $ 1 billion through a reorganization that will include cuts and early retirement for some workers. The plan will cost about $ 900 million, which will include divorce and other ‘termination benefits’, “the company said in a statement submitted. Chief Financial Officer Kelly Kramer is also gone. Revenue will fall 9% to 11% from a year earlier in fiscal first quarter, which ends in October, the company said in a statement in San Jose, California, on Wednesday, adding analysts had projected a decline of about 7% on average, adjusted profit to be 69 cents to 71 cents a share , lower than Wall Street expectations of 76 cents, according to data compiled by Bloomberg.
Cisco shares fell 11% to $ 42.88 trading Thursday in New York.
Analysts were widely disappointed by the news, with Cowen writing that the results and outlook were “at least uninspiring and at least somewhat worrying.” However, the longer-term view was more positive. Several companies cited Cisco’s dividend and valuation as factors that limit many additional downside risks, and the story in 2021 “could be materially improved,” according to Evercore ISI.
A large portion of Cisco’s revenue comes from government agencies, small and medium-sized businesses, and Internet and online video game providers. While some larger companies are still issuing, many smaller customers have cut spending to accommodate an economic slowdown triggered by Covid-19 lockdowns.
In Cisco’s Americas region, where sales fell 12%, demand has not improved in the last 90 days and the US needs Congress to deliver another incentive package, Robbins said in an interview.
“When you go down the customer base, things just get weaker and weaker, because the customers are getting smaller and smaller, because they just don’t have the financials,” he said. “This country is still run by small and medium-sized businesses for rent and everything else. I worry about what happens next. ”
Robbins said optimism about a handball in revenue from tech business has been fueled by demand from consumers in certain areas. But large investments in business infrastructure will require more evidence of an improving economy, he warned.
Robbins seeks to reduce Cisco’s reliance on expensive proprietary hardware and increase sales of software and services. After returning to growth in 2018, revenues began to decline again this year, showing how Cisco’s business is still exposed to economic cycles.
Cisco said net income in the fiscal quarter to $ 2.6 billion, or 62 cents a share, went from $ 2.2 billion, up 51 cents, a year earlier. Revenue fell to $ 12.2 billion. With the exception of certain items, Cisco posted earnings of 80 cents per share. Analysts were looking for gains of 74 cents on revenue of $ 12.1 billion.
Infrastructure platforms, their hardware business and the main source of revenue, suffered a 16% sales loss to $ 6.6 billion. Applications, the software company, saw revenue fall 9%, while security-related sales increased 10%.
(Renews share price in fourth paragraph.)
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