Cisco’s revenue forecast points to steady technology spending

CISCO Systems, the biggest maker of machines that run computer networks and the internet, gave an upbeat quarterly revenue forecast, while also unveiling a plan to cut jobs and reduce office space to align with changing business conditions.

Sales in the quarter ending in January will jump 4.5 per cent to 6.5 per cent, Cisco said on Wednesday (Nov 16) in a statement. Analysts had predicted that revenue would expand about 4 per cent from a year ago when the company generated US$12.7 billion in sales. For fiscal 2023, revenue will grow as much as 6.5 per cent, an increase from the company’s previous outlook of as much as 6 per cent.

Cisco said a restructuring plan beginning in the current quarter would involve job cuts to “rebalance the organisation” and office closings to align better with employees working in a hybrid system from home and company locations. San Jose, California-based Cisco will incur pretax charges of about US$600 million for severance, termination and other costs, about half of which will be recognised in the current quarter, according to a regulatory filing.

The restructuring plan will affect about 5 per cent of the company’s employees, who will be given the opportunity to move to other positions at Cisco, chief financial officer Scott Herren said in an interview.

“This is not about reducing our workforce — in fact, we’ll have roughly the same number of employees at the end of this fiscal year as we had when we started,” Herren said. Cisco had more than 83,000 employees as of Jul 30.

Cisco joins technology companies including Meta Platform, Amazon.com and Salesforce that have announced job cuts and hiring freezes in recent weeks amid an uncertain economic climate.

Cisco’s management has argued that upgrading networks to keep up with the pace of data generation is so important that corporations and government agencies were continuing to spend regardless of external circumstances. That optimism in the face of the broader economic downturn is being supporting by continuing strong orders and Cisco’s ability to meet customer demand via greater availability of components.

The shares rose about 4 per cent in extended trading following the announcement. The stock had earlier closed at US$44.39 in New York and has dropped 30 per cent this year.

Under chief executive officer Chuck Robbins, Cisco has been trying to fire up growth with hardware and software, as well as new products provided over the internet. Robbins is aiming to make the company a provider of services paid for on a recurring basis and less reliant on one-time sales of expensive machines.

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Revenue in the three months that ended Oct 29 gained 6 per cent to US$13.6 billion. Excluding some items, per-share profit was 86 US cents. Analysts had projected sales of US$13.3 billion and profit of 84 US cents.

Highlighting the demand for Cisco’s gear, its hardware division — the largest contributor to total revenue -posted a sales increase of 12 per cent in the fiscal first quarter from a year earlier. The security unit gained 9 per cent while collaboration, Cisco’s conferencing-related division, declined 2 per cent.

Recurring revenue from its new product offerings increased to more than US$23 billion on an annualised basis, and greater availability of chips helped the company fill more orders, Herren said in the statement. That performance, along with the easing supply situation, “provides us with great visibility and predictability, and supports our increased full year guidance”, Herren added.

Profit, excluding some items, will be 84 US cents to 86 US cents a share in the current quarter. For the fiscal year, Cisco projected that measure at US$3.51 to US$3.58 a share. Both predictions are in line with estimates. BLOOMBERG