Cisco Reorganization Is Competitive Edge: CEO Chambers

Cisco CEO John Chambers said the reorganization and restructuring the company is undergoing will prove to be a competitive advantage against its rivals.

The painful and company-wide restructuring and job cuts at Cisco Systems, brought on by several disappointing financial quarters, will prove to be a competitive advantage for the networking giant going forward, according to CEO John Chambers.

Speaking to analysts and journalists Aug. 10 while announcing the company's fiscal fourth-quarter financial numbers, Chambers noted that rivals are beginning to undergo the same market pressures-such as significant drops in public sector spending-that have haunted Cisco over the past year.

Cisco is months along a journey that competitors like Juniper Networks and Riverbed Technology-both of which saw difficult quarters-are just about to begin, he said.

"Our moves now give us the advantage over our competitors," Chambers said.

Those moves include streamlining its sales, services and engineering units, getting rid of businesses that don't address Cisco's key markets-the company essentially cut its consumer business and rid itself of its profitable Flip video camera unit-and reducing the workforce by about 9 percent by cutting about 6,500 jobs. Seventeen percent of those workers at the vice president level or higher were cut, and another 5,000 will leave Cisco when the company sells its TV set-top box manufacturing plant in Mexico.

The goal is to cut $1 billion in annual operating expenses, and the result will be a more competitive and more focused Cisco, Chambers said.

Juniper last month announced an 11 percent drop in income on a 15 percent revenue increase, numbers that missed analyst targets. Juniper officials said solid numbers in their switching and router businesses were offset by the difficult economy and other factors. Riverbed's stock also took a hit last month, despite the company's 35 percent growth in revenues.

Cisco's financial numbers were a mixture, though the overall story was one of a company that seems to be finding its footing again. Revenues in the fourth quarter rose 3.3 percent, to $11.2 billion, and 7.9 percent for the entire fiscal year. In addition, product orders jumped 11 percent. However, net income dropped 12.4 percent, to $2.2 billion.

Among the bright spots was data center equipment, in particular Cisco's UCS (Unified Computing System) business, which saw its run rate jump to $1.1 billion and another 2,000 customers sign on, bringing the total number of UCS customers to more than 7,400.

However, there continue to be challenges, in particular the continued drop in public sector spending, which accounts for as much as a fifth of Cisco revenues. Federal government revenues fell 18 percent, while state and local dropped 2 percent.

Chambers also acknowledged the difficult world economy, particularly in light of the high volatility of stocks in recent days following the increasing problems in the European Union and Standard & Poor's decision last week to lower the United States' bond rating.

For the current quarter, Cisco officials said they expect sales to grow as much as 4 percent-or between $10.8 billion to $11.1 billion-over the same period last year.