(Bloomberg) — Cisco Systems Inc. gave a lackluster sales forecast for the current period, a sign that businesses and government agencies are spending less in the pandemic-driven recession.
Chief Executive Officer Chuck Robbins pledged to reduce expenses by $1 billion through a reorganization that will include job cuts and early retirement for some workers. The plan will cost about $900 million, which will include severance and other “termination benefits,” the company said in a regulatory filing. Chief Financial Officer Kelly Kramer is also leaving. Revenue will fall 9% to 11% from a year earlier in the fiscal first quarter, which ends in late October, the San Jose, California-based company said Wednesday in a statement. Analysts on average had projected a decline of about 7%. Adjusted profit will be 69 cents to 71 cents a share, lower than Wall Street expectations of 76 cents, according to data compiled by Bloomberg.
Cisco shares fell almost 7% in extended trading. The stock closed at $48.10 in New York earlier.
A large chunk of Cisco’s revenue comes from government agencies, small and medium-sized businesses and providers of internet and online video services. Many of these customers have cut spending to adjust to an economic slowdown sparked by Covid-19 lockdowns.
The results “reflect the ongoing challenges in the current environment” Cisco said. “Some customers continue to delay purchasing decisions until they have greater clarity.”
Robbins is trying to reduce Cisco’s reliance on expensive proprietary hardware and increase sales of software and services. After returning to growth in 2018, revenue has started to decline again this year, showing how Cisco’s business is still exposed to economic cycles.
Cisco said net income in the fiscal fourth-quarter rose to $2.6 billion, or 62 cents a share, from $2.2 billion, or 51 cents, a year earlier. Revenue fell to $12.2 billion. Excluding certain items, Cisco posted profit of 80 cents a share. Analysts were looking for profit of 74 cents on revenue of $12.1 billion.
Infrastructure platforms, its hardware business and main source of revenue, suffered a 16% sales drop to $6.6 billion. Applications, the software business, saw revenue fall 9%, while security-related sales increased 10%.
(Updates with reorganization plan in second paragraph.)
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