Cisco Systems reports its profits fell by almost half in the fiscal fourth quarter and sales dropped by more than 17 percent. Like other IT vendors, Cisco is still being pounded by the global recession. However, CEO John Chambers says seasonal trends seem to be getting back to normal, and early order numbers look positive. Cisco also plans to expand its data center competition with HP and IBM with new models of its UCS all-in-one offering in the next few months.
It was a cautiously optimistic John Chambers who presented Cisco Systems'
fiscal fourth-quarter earnings.
Cisco, the dominant networking vendor that is looking to expand deeper into
the data center, reported Aug. 5 that profits had dropped 46 percent from the
same period in 2008, to $1.1 billion. In addition, sales fell more than 17
percent, to $8.5 billion.
However, Chambers, Cisco's chairman and CEO,
said for the first time in several quarters the sequential growth from the
third to the fourth quarter was seasonally normal, and that it could bode well
for the coming months.
He and other Cisco officials said while IT spending by businesses is not
growing rapidly, there are positive signs in orders when compared with earlier in
the year, as the global recession was still striking with full force.
If the trend continues, Cisco officials could look back and see that
"the tipping point came in the fourth quarter," Chambers said during
a conference call with analysts and journalists.
"While it's too early to call it a recovery, there is a normal seasonal
trend," Chambers said.
Still, he said he expects fiscal first-quarter sales to drop 15 to 17
percent over the same period the previous year. However, Chambers noted that
while in good economic times the year-over-year comparisons were most
important, during difficult times, sequential growth is important.
Cisco saw sales declines in all areas of its business in the fourth quarter,
except for services, and saw declines in most regions.
A key point for the company was cutting expenses. Chambers and Frank
Calderoni, executive vice president and chief financial officer, said Cisco
exceeded its annual projections during the fourth quarter by cutting more than
$1.5 billion in expenses. Some of that was through cuts of about 2,000 jobs.
During a question-and-answer period, Chambers and other Cisco officials were
asked about pressure on their networking business from Hewlett-Packard's
ProCurve business, and the competition they're entering in the data center with
(Unified Computing System),
an all-in-one offering that includes server,
storage, networking and management software in a single package.
Chambers touted the acceptance of the latest
Cisco networking equipment,
including the ASR
1000 and ASR 9000 core routers and Nexus
5000 and 7000 switches.
Regarding the UCS, which puts Cisco into direct competition with OEMs such
as HP and IBM, Chambers said it was an $85
billion market, of which Cisco only had a fraction, so there was business to be
"All of a sudden, we're a player in the data center," he said.
"Customers have responded positively to us playing there."
The UCS is in the hands of some, or at least a few, customers currently, and
Chambers said he expects the volume to grow in the second half of the year. He
and other officials also noted that currently the greatest interest is coming
from midsize customers, but they expect to see more interest from larger
They also said they plan to expand the offering. Currently it's based on
Cisco-branded blade servers, but the strategy over the next few months is to
roll out models with traditional rack servers.
Chambers also talked about opportunities in the over 30 "market
adjacencies" that Cisco is targeting-such as transportation and energy
distribution-in which the vendor is looking to offer solutions based on Cisco
He said he expects that number to grow beyond 30 in the next year.