Cisco - second quarter sales

Cisco second-quarter sales, profit fall

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Cisco Systems Inc.'s revenue and net income for its fiscal second quarter fell from a year earlier as the company grappled with the global economic downturn.

Revenue for the quarter that ended Jan. 24 was $9.1 billion, down 7.5% from the second quarter of fiscal 2008. Profits fell even more steeply, with net income hitting $1.5 billion, down 27% from a year earlier. Cisco earned 26 cents per share, down more than 20% from the earlier quarter.

However, the company did meet Wall Street analysts' expectations for revenue and for earnings, not counting special items. Analysts surveyed by Thomson Reuters had expected revenue of $9 billion and earnings of 30 cents per share.

"Cisco showcased solid financial strength during a period of significant economic challenge," Chairman and CEO John Chambers said in a statement. "We remain comfortable with our long-term vision and strategy as we move into new market adjacencies and prioritize our existing opportunities."

The gloomy results come after a string of major IT companies reported losses or dramatic revenue and profit falls for periods coinciding with the stock-market and credit crash last year.

Cisco sees hard times continuing for the near future, forecasting that revenue for the current quarter will be down between 15% and 20% from a year earlier, Chambers said. Business slowed during the second quarter and was down 20% year over year in January, he said.

"The environment has continued to change dramatically in the last few months," Chambers said. "It is clear now that we are in a global economic slowdown. ... [Cisco] will obviously be impacted."

The company is not considering layoffs today, Chambers said, defining that as a cut of 10% or more of its workforce. But as the company goes through its normal realignment of resources, that could result in job reductions of 1,500 to 2,000 in the near term, he said. Overall, Cisco is ahead of its plan to cut expenses by $1 billion per year.

Funding priority will be going to Cisco's top five opportunities, according to Chambers. Those are next-generation company and customer relations, dubbed Cisco 3.0; collaboration and Web 2.0; video; data centers and virtualization; and globalization, he said.

The company will also continue with its plan to invest in emerging economies, with China and India in the first wave of that strategy and Mexico, Brazil, Saudi Arabia and Russia coming in the second, Chambers said.

The CEO said most executives he talks with don't expect a recovery until 2010, but Chambers noted that he is more optimistic. The U.S. and other governments have generally responded well to the world financial crisis, he said, providing hope for a possible upturn before the end of this year. The recovery will begin in the U.S., and the rest of the world will follow, he said.

"President Obama's off to a great start, and I think his economic team is world-class," Chambers said.

The quarter's results did vary by country, with growth in product orders of more than 10% in Mexico, Germany, Austria and Switzerland, and particularly steep drops in orders in the U.S., the U.K., Italy and Russia, Chambers said. Routers were the hardest-hit product category in the quarter, with revenue down about 23%, while video equipment revenue was a bright spot with 18% growth.

In after-hours trading late Wednesday, Cisco's Nasdaq shares (CSCO) were down 72 cents, at $15.12.