Cisco Turns in a Sluggish Second Quarter

Cisco CEO John Chambers said there were some successes in the quarter, in such areas as data center and collaboration, but areas such as switching suffered.

Cisco Systems CEO John Chambers once again had to go before analysts and journalists and explain the relatively sluggish performance of the company, particularly when compared with other high-tech giants such as Intel, Google and IBM.

Chambers, calling Cisco a company in transition, pointed to a number of areas that he said are holding the company back, from a flood of new products that depressed earnings in the switching business to continued softness in spending by government agencies, which make up about 20 percent of Cisco revenues.

He said there are some areas that are going strong for Cisco, from data center products like the UCS (Unified Computing System), collaboration technologies-including what was acquired through its purchase of video collaboration vendor Tandberg-and wireless, all of which showed strong revenue growth.

However, some businesses, like the core switching unit, saw revenue declines. Chambers said the company rolled out a host of new switching products in close proximity over the past year, an indication that Cisco's "innovation engine" is roaring ahead but caused issues for salespeople.

Chambers noted the problems, but said that overall, the company's second-quarter 2011 rolled out as expected. The troubles, he said, will help the company in the long run.

"I think we will look back on this period of time and wish we could have avoided it," Chamber said during the Feb. 9 conference call, adding that "it will make us stronger."

Overall, Cisco reported revenue of $10.4 billion, up 6 percent over the same period last year, while net income fell 18 percent, to $1.5 billion over the second-quarter 2010. Chambers said revenues in the current quarter should increase 4 to 6 percent over the third quarter last year, and should rise 8 to 11 percent in the fourth quarter over the period in 2010.

Cisco over the past couple of years has aggressively pushed its way into new markets beyond the core networking business that made it a technology bellwether. For example, the company has expanded into the data center with the UCS, extended its reach into collaboration technology and moved into wireless, smart grid and other areas.

The expansion has been aimed at helping Cisco achieve 12 to 17 percent growth, though Chambers shied away from a question during the conference call as to whether he is considering lowering those growth projections. He did say, though, that having such a far reach will help it weather such difficult times.

However, it also has put Cisco in direct competition with a number of former technology vendors, in particular Hewlett-Packard. Once close partners, the two have become fierce rivals since Cisco unveiled its UCS integrated data center offering two years ago. Since that time, HP has made a strong push into the networking business, in particular with its acquisition of 3Com.

At the same time, other rivals, such as Juniper Networks, have attacked Cisco in the networking business.