Cisco Completes Restructuring As Revenues Rise

It has been a painful restructuring period for Cisco, but judging by its revenues the medicine is working

The past year has proved to be a torrid one for Cisco Systems, following a difficult reorganisation that saw the closure of business units and the loss of more than 8,000 jobs in an effort to streamline the company.

In announcing the networking giant’s fiscal year 2012 first-quarter financial numbers, Cisco CEO John Chambers said the bulk of the reorganisation is completed.

He said now the company is putting its focus on expanding its presence in areas that executives have identified as growth markets, including the data centre, cloud computing, collaboration, video, and core switches and routers.

Improving Financials

In addition, Cisco is pursuing the long-term growth objectives outlined to financial analysts in September of revenue increases of between 5 and 7 percent over the next three fiscal years.

For the first quarter, Cisco exceeded analyst estimates, with revenue growing 5 percent over the same period last year to $11.3 billion (£7.1bn). However net income fell to $1.8 billion (£1.1bn), an 8 percent drop.

Chambers said Cisco is forecasting revenue increases of 7 to 8 percent in the next quarter.

Cisco spent much of 2010 and into 2011 dogged by disappointing financial results and lowered forecasts. Analysts questioned whether Cisco’s expansion into new business sectors caused the company to lose focus on its core businesses, particularly switches and routers, enabling rivals like Hewlett-Packard – bolstered by its acquisition of 3Com – and Juniper Networks to make inroads in the networking space.

The situation prompted Chambers to issue a lengthy memo to employees about changes that were in the offing to get the company back on its feet. Soon after, Cisco shut down the bulk of its consumer business, including shuttering its profitable Flip video camera unit, and later streamlined its sales, services and management units.

Stabilising Position

In May, Chambers warned that more streamlining was needed, which would include job cuts, in an effort to save $1 billion (£628m) in expenses. Those cuts were announced in July.

Chambers said during a conference call with analysts and journalists 9 November that the company is stabilising and is seeing growth in many of its business units and in many regions around the world. For example, the company’s data centre business saw 107 percent revenue growth, due in large part to growth in its Unified Computing System (UCS), a converged data centre appliance that offers not only Cisco server and networking technology, but also storage from EMC and virtualisation from VMware.

Cisco added 1,572 new UCS customers in the quarter, bringing the total number of UCS customers to almost 9,000.

Like other top-tier tech vendors such as IBM, Dell and HP, Cisco is looking to grow beyond being a company that simply sells individual products and into one that sells complete enterprise solutions, from data centre offerings to collaboration and video products, and offers the services to bring all that together.

Chambers said Cisco saw product orders grow between 12 percent and 13 percent in all regions throughout the world. However, he also warned that going forward, the shaky economic situations in Europe and elsewhere, as well as the flooding issues in Thailand, will continue to be points of concern for Cisco and others.

“Europe will be a challenge for us in the next quarter, as it will be for others,” Chambers said.