Cisco has announced an 86% fall in net income for fiscal Q4.
The world’s largest network equipment maker, Cisco, on Tuesday announced a 25% drop in sales for fiscal Q4 to $4.3 billion, with pro forma net income for the quarter down 86% to $163 million. Net income for the whole fiscal year was down from 22% to $3.1 billion, although sales for the year were up 18% to $22.3 billion.
Cisco’s results came as no surprise, coming within analyst expectations. More important is how Cisco is coping with the slump. Its restructuring plans seem to be going well, with its targeted $1 billion in annual savings almost reached, having cut 15% of its workforce earlier in the year. Cisco believes it can now meet the target without further redundancies.
When the downturn is over, Cisco is certain to return to good health. The fact that it has already returned to profit following heavy write-offs last quarter is a good sign. And unlike rival companies, it has $18 billion in cash and no long-term debt.
But quite when the downturn will be over is hard to say. CEO John Chambers’ comments sound less than positive. We have not yet reached a bottom in our industry, he said, although the company does expect the US market to hit the bottom in the next two quarters. Importantly, its kit – specifically, IP routers – is as close to essential as IT equipment can get. When IT budgets rise again, Cisco will be one of the first to feel the benefits.
In the meantime, some in the industry are surprised Cisco hasn’t used its cash to buy out enfeebled competitors, with Marconi mentioned as a potential target. Cisco claims that there isn’t anyone worth buying, and that Marconi is a poor target as its kit is not IP-based. It’s possible that the company has its hands full enough adjusting from an ultra-fast growth industry to a declining one – a transition that it seems to be managing fairly well.
