Bloomberg News

Cisco Expects Slowdown in Annual Sales Growth, Earnings Gain

September 13, 2011

(Updates with an analyst’s remarks in fourth paragraph.)

Sept. 13 (Bloomberg) -- Cisco Systems Inc. executives predicted annual sales growth of 5 percent to 7 percent by 2014, a slowdown from the range of 12 percent to 17 percent the networking-gear maker had been predicting until this year.

The company also forecast per-share earnings growth of 7 percent to 9 percent in the coming three years, and operating margins in the “mid-20s” percentage range, San Jose, California-based Cisco said during a presentation to analysts today. The earnings growth represents an improvement from last quarter’s decline, and the operating margin would be higher than last year’s 19.6 percent.

Chief Executive Officer John Chambers is eliminating jobs and exiting businesses in a bid to revive sales growth and reverse the slide that has knocked 19 percent off Cisco’s share price this year. In all, 12,700 people have departed as part of a cost-reduction effort, Cisco said.

“Although the new projections are woefully short of prior estimates, the good news is that Cisco intends to boost operating margins,” Dave Novosel, an analyst at Gimme Credit LLC, wrote in a research report. “The company plans to achieve the margin expansion via headcount reductions and other cost cutting measures.”

Chambers said he plans to remain at the company for another three years. The board of directors and the management are “completely in sync,” the executive said.

Even as it sheds workers, Cisco plans to be “very active” in making smaller-sized acquisitions, Chambers said.

Pressure from Rivals

Chambers scrapped the four-year-old sales-growth forecast in May amid lackluster demand and price pressure from rivals. To cope, the company embarked on a strategy overhaul that included shedding consumer businesses and scaling back a council-based management structure that resulted in slower decision making.

Chambers used today’s conference to take verbal swipes at two main rivals in the market for routers and switches. Juniper Networks Inc. is the “most vulnerable I’ve ever seen them,” he said. Cisco’s strategy is hurting Hewlett-Packard Co., he said.

Cisco rose 26 cents to $16.35 at 4 p.m. New York time on the Nasdaq Stock Market.

--Editors: Tom Giles, Nick Turner

To contact the reporters on this story: Danielle Kucera in New York at dkucera6@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus