Cisco Earnings Reflect Drop in Corporate Spending
____________________________________________________________
By ASHLEE VANCE
The New York Times
February 5, 2009
MOUNTAIN VIEW, Calif. — Cisco Systems, the largest supplier of networking equipment, reported as expected on Wednesday a sharp drop in sales during its second quarter, joining a long list of technology suppliers suffering from a slump in corporate spending.
Cisco, based in San Jose, Calif., posted a 27 percent drop in net income to $1.5 billion, or 32 cents a share, which compares with net income of $2.1 billion, or 38 cents a share, reported in the same period last year. Cisco beat the consensus forecast from analysts polled by Thomson Reuters of 30 cents.
Revenue in the second quarter fell to $9.1 billion, or a drop of 7.5 percent. Last November, Cisco warned that revenue could drop 5 to 10 percent from the $9.8 billion reported in its previous second quarter, because of a worsening global economy.
“Cisco showcased solid financial strength during a period of significant economic challenge,” said John T. Chambers, Cisco’s chief executive, in a statement.
Cisco’s results include sales through Jan. 24, when its second quarter ended, and provide the most up-to-date glimpse into the health of the technology sector.
Technology companies have been punished by a sharp pullback in spending that has stretched from weak PC and cellphone sales all the way to the data center equipment sold by Cisco. Last week, Juniper Networks, Cisco’s main networking rival, warned that sales in its current quarter would most likely come in well below analysts’ expectations.
The major technology companies have largely declined to provide sales forecast for the rest of the year, saying the economy remains too unpredictable for accurate predictions.
In the coming months, Cisco plans to release the first of a new series of products that will thrust it into the server computer market. Cisco’s new hardware will place it in direct competition with traditional partners like Hewlett-Packard, I.B.M., Dell and Sun Microsystems. In addition, Cisco will enter a part of the hardware market with much lower gross margins, usually about 25 percent, than the 65 percent margins it is accustomed to with networking gear.
By bundling software and networking hardware with the new servers, Cisco hopes to increase the overall margins of its new products. It is also aiming to meet growth targets by charging into the $50 billion server arena.
The company is also extending its reach into the consumer electronics market with a digital stereo system and Internet TV devices.
Shares of Cisco were up more than 1.4 percent during Wednesday’s trading, closing at $15.54 a share. |
