Big decline in sales expected
Cisco Systems Inc., the world’s largest maker of computer networking gear, warned that orders fell off abruptly in October and projected a large fall in sales in the current quarter. Its shares slid in after-hours trading.
In a conference call with investors after Cisco reported flat earnings for the previous quarter, Chief Executive John Chambers said he expected revenue to fall 5% to 10% in the current quarter, which began Oct. 26. That would mean revenue of $8.85 billion to $9.34 billion, far below the $10.4 billion expected by analysts polled by Thomson Reuters.
Because Cisco’s previous fiscal quarter ended Oct. 25 rather than Sept. 30, Cisco was the first major technology company to include results for October. The global credit crisis worsened dramatically during the month, and the severity of the order downturn Cisco reported is sure to be felt at other companies.
Chambers said the revenue projection assumed that the order level of October would hold through the end of the quarter. He said the business slowdown in the U.S. spread to Europe, emerging markets and Asia in the latest quarter.
The CEO said the company planned to cut $1 billion from its annual costs by the end of its fiscal year, by pausing hiring and cutting marketing and travel. That’s a reversal of its optimistic stance earlier this year, when it said it would use its cash to invest through the downturn and take market share.
Cisco shares fell 94 cents, or 5.1%, to $17.39 in regular trading Wednesday. In extended trading, after the release of the results, the stock was down a further 92 cents.
For the latest quarter, earnings were essentially flat as spending on research and marketing increased faster than sales.
Earnings were $2.2 billion, or 37 cents a share. In the same quarter last year, Cisco earned 0.2% more, which amounted to 35 cents a share. Per-share earnings rose in this year’s quarter because of stock buybacks.
Excluding items related to employee compensation and acquisitions, earnings were 42 cents a share. That exceeded the 39 cents that analysts polled by Thomson Reuters were expecting.
Sales were $10.3 billion, up 8% from a year earlier.
They matched the analyst estimate.