Cisco Systems Inc. (Nasdaq: CSCO), the world’s largest maker of networking equipment, reported profit that beat analysts’ estimates after the company eliminated jobs and pared businesses.
The technology bellwether’s net income fell 36 percent from a year ago. But that was because of a $772 million charge before taxes to cover the elimination of 6,500 jobs, which the company announced last month.
The earnings announced Wednesday topped analyst projections, excluding that charge and other items.
(One analyst cheers the stabilization as Cisco’s CEO delivers a pep talk. Read here.)
Company executives also updated the firm’s massive layoff plan that is cutting more than 10 percent of its employees.
Cisco plans to lay off 6,500 employees while reducing its headcount by another 5,000 through the sale of a manufacturing plant in Mexico.
Among the cutbacks are some 2,100 people who opted to participate in an early retirement plan.
The company also has reduced its senior executive ranks – vice president and above, by 17 percent, Cisco’s Chief Operating Officer Gary Moore said in a conference call.
The reductions also will affect contractors. Moore said the company would cut 1,200 this quarter.
Cisco employs several hundred contractors at its RTP campus.
The earnings report news sent Cisco shares up 7.5 percent, or $1.03, to $14.76 in after-hours trading.
Cisco made $1.2 billion, or 22 cents per share, in the fiscal fourth quarter, which ended in July. That compares with net income of $1.9 billion, or 33 cents per share, last year.
Revenue grew 3 percent from last year to $11.2 billion. That was about $300 million above analyst estimates.
Excluding some costs, profit was 40 cents a share in the fiscal fourth quarter, Cisco said today in a statement. Analysts had predicted 38 cents on average, according to Bloomberg data. Sales were $11.2 billion in the period, which ended July 30, compared with an estimate of $11 billion.
Chief Executive Officer John Chambers is slimming down the company amid slowing customer spending and increased competition from Juniper Networks Inc. (Nasdaq: JNPR) and Hewlett-Packard Co. (NYSE: HPQ) Cisco has fired workers and closed its Flip video camera unit to focus on its main routing and switching products. That’s helping the company adjust to the sluggish economy, said Alkesh Shah, an analyst at Evercore Partners in New York.
“The cost-cutting appears to be bearing fruit,” he said. “Cisco saw signs of the downturn about four quarters ago, starting with U.S. government spending slowing down, and began adjusting their business model accordingly.”
(Read the earnings report here.)
Cisco employs some 4,000 people at its campus in Research Triangle Park, N.C., its second largest number in one location outside of Silicon Valley where the company is based.
Cisco, down 32 percent this year, had closed at $13.73 on the Nasdaq Stock Market.
Standard & Poor’s downgraded the U.S. credit rating to AA+ from AAA last week. That may make it more difficult for businesses and government agencies to borrow money, curbing spending on technology. Central banks are trying to prevent a new recession, with Federal Reserve Chairman Ben S. Bernanke vowing yesterday to keep borrowing costs at an all-time low to revive a recovery that’s “considerably slower” than expected.
As part of a plan to reduce costs by $1 billion next year, Cisco said July 18 that it would eliminate 6,500 workers through firings and an early retirement program. It also sold a factory in Mexico. Cisco recorded pretax restructuring costs and other charges of $772 million in the period.
Cisco is making the cuts as rivals gain market share in both routing and switching, which combined made up half of the company’s revenue last year. Cisco’s share of worldwide switching revenue dropped 5.8 percentage points to 68.5 percent, and its share of router sales dropped 6.4 percentage points to 54.2 percent, according to a May report from Dell’Oro Group. Hewlett-Packard gained switching share, while Juniper added share in the router market.
Cisco’s results are seen as a bellwether for the technology industry because its switches and routers dominate the market. Organizations buy the switches to direct Internet traffic on their networks, while phone and internet-service providers rely on the company’s routers.
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