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Shares in Cisco Systems fell after hours of trading Wednesday after the company posted a weaker-than-expected outlook for the company’s current quarter ending in October.
In the fiscal fourth quarter ending July 25, the network giant posted revenue of $ 12.2 billion, down 9% from a year ago. The figure is within the company’s guidelines for a drop of 8.5% to 11.5%, and is slightly higher than Wall Street analysts’ consensus of $ 12.1 billion. Adjusted, or not GAAP, return of 80 cents a share, down 4% from a year ago, but well above Street’s forecast 74 cents and above company guidelines 72 cents to 74 cents.
Cisco (code: CSCO) said product revenue fell 13% in the quarter, while services revenue went flat. Sales fell 12% in the Americas, 6% in EMEA (Europe, Middle East and Africa) and 7% in APJC (Asia-Pacific, Japan and China). Security revenue increased 10%, but Infrastructure Platform revenue fell 16% and Applications revenue fell 9%. The company did not buy back any shares during the quarter.
In the current October quarter, Cisco sees a 9% to 11% drop in revenue from a year ago, which means ranging from $ 11.7 billion to $ 12 billion, which is lower than Street’s current consensus forecast. is 12.25 billion dollars. Cisco found non-GAAP returns for the quarter from 69 to 71 cents a share, with a consensus not reaching 76 cents.
The company also announced that Chief Financial Officer Kelly Kramer plans to retire but will stay on until a successor is available.
“By the end of fiscal 2020, we have reached our goal of more than half of revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations.” CEO Chuck Robbins said in a statement. “As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to provide our customers with the best, most relevant technology under simpler way, easier to consume ”.
Robbins pointed out during Cisco’s post-earnings conference call that the company plans to cut costs by around $ 1 billion over the next few quarters.
In an interview with Barron’s this afternoon, Kramer confirmed that the cost-cutting will include some job cuts, but she hopes a significant portion of that will be in the form of employees accepting voluntarily. early retirement.
When asked about the disappointing guidance for this quarter, she noted that the Old Street consensus had expected a slight improvement in conditions in the current quarter from the 7th quarter, but “the environment is not yet real. the better ”.
Kramer adds that very large businesses continue to invest in their infrastructure, but the company is seeing slower activity from small and midsize customers.
On the subject of the company’s plans to spend more aggressively on new business areas, Kramer says that could include a significant commitment to acquisitions. She noted that the company is expected to continue to spend about $ 3 billion per year on buying other businesses, in addition to spending about $ 6 billion per year on R&D.
Kramer confirmed that the company has decided not to buy back any shares in the most recent quarter, but she said Cisco is expected to buy back shares in the current quarter. She notes that the company previously spent about $ 1 billion per quarter on stock repurchases.
When asked about the company’s WebEx video conferencing business, Kramer said it had double-digit growth for the quarter, adding that WebEx is seeing a better-than-expected transition from Free trials into paid customers. “It’s going very well,” she said.
Cisco fell 6.5 percent by the end of the session, to $ 45.
Write letter for Eric J. Savitz at eric.savitz@barrons.com
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