Cisco Systems Inc slashed its long-term forecasts, acknowledging an end to an era of scorching growth after cutting thousands of jobs in a sweeping four-month reorganization.
The reduction in projections had been expected from a company grappling with both nimbler rivals and a rickety global outlook for government and corporate tech spending. Yet investors pushed its shares 1.6 per cent higher, relieved the overhaul was bearing fruit: reducing costs and setting Cisco on a path for slower but more stable growth.
CEO John Chambers in April launched a broad restructuring after declaring that the erstwhile Wall Street darling had lost its way. That included plans to reduce its workforce by about 15 percent — with nearly 13,000 taken off its payroll so far — and shutter its Flip video camera division.
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Investors have turned cautiously optimistic at the pace with which the revamp has progressed. And on Tuesday, Chambers said customers he spoke to in the past 120 days had all pledged to either keep their spending with Cisco intact, or even increase it.
“Cisco was very upbeat. It sounds like their efforts in terms of streamlining the company and simplifying the structure are paying off and allowing the company to execute better at least in the near term,” Sterne Agee analyst Shaw Wu said.
Analysts generally applauded the speed with which Chambers has restructured the business in roughly 120 days. Sources familiar with the situation told Reuters this week that the 62-year-old CEO is looking to end his 16-year run on a high note, with the company on firmer footing. They said speculation has centered around a succession by the likes of Silicon Valley veteran and Oracle president Mark Hurd once Cisco returns to stable growth.
“In terms of the board and the management team, we’re completely in sync,” Chambers said. “They asked me personally would I be willing to commit to another three years.”
Cisco — a bellwether for the networking industry because of its global, diverse clientele — shaved its long-term revenue growth target by roughly half to 5 percent to 7 per cent from 12 to 17 per cent previously. The new target was also below Cisco’s estimate for total market growth of 7 to 8 per cent which raised eyebrows among some analysts.
But it forecast 2012 gross profit margins that were better than investors feared. Cisco also said earnings would grow at about 7 percent to 9 per cent in the coming three years.
“Growing earnings faster than revenue is also a plus. This is Cisco’s new world,” said BGC Partners analyst Colin Gillis. “Everybody knew the old targets were off the table. It’s not a surprise, it’s not as bad as it could have been.”
Even as Cisco looks to reemerge from a slump due to entering businesses that were outside of its core routing competency, the vendor is taking a public swing at its Silicon Valley neighbor, Juniper.
In its campaign, called “Can You Trust a Vendor who Overpromises and Underdelivers?” Cisco argues that Juniper has failed to meet its promise to deliver key products, including its 100 Gigabit Ethernet and MX Series edge routers, two-and-a-half years after they were first announced. Cisco also said that Juniper’s T4000 core router–which was supposed to debut last year–isn’t available yet. In addition, Cisco alleges that Juniper has not publicly debuted its Project Falcon platform despite three launches of the solution, and its QFabric data center system is still unavailable.
“Vision doesn’t mean much if your track record of execution is murky,” Cisco operations executive Robert Lloyd said in a company blog post, referring to Juniper. “No amount of future promises can make up for failures in execution. Over-promising and under-delivering does not result in a strong reputation with customers.”
Of course, Juniper was quick to dismiss the allegations. Stefan Dyckerhoff, who oversees Juniper’s platform systems division, said in a Wall Street Journal article that “I can honestly say we have met every date we have ever put out there.” On Monday, Juniper told analysts that the remaining two elements of QFabric will actually be available this week.