Cisco's Plan for 2012: Simplify the Business

Cisco reports fourth quarter earnings as company streamlines products and operations.

By Sean Michael Kerner | Posted Aug 11, 2011
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Fiscal 2011 was a challenging year for networking giant Cisco (NASDAQ:CSCO). The company closed business units and laid off employees. Even in the midst of those challenges, Cisco continues to push forward and realign its business for future growth.

Cisco reported its fourth quarter fiscal 2011 financial earnings late Wednesday. For the quarter, Net Sales were reported at $11.2 billion for a 3 percent year-over-year increase. Net Income was reported at $1.2 billion, which is a 36.3 percent decline over the fourth quarter of fiscal 2010. For the full fiscal 2011 year, Cisco's Net Sales came in at 43.2 billion for a 7.9 percent year-over-year gain. Net Income for the year was reported at $6.5 billion for a 16.4 percent year-over-year decline.

Cisco was affected by weakness in multiple areas of its business including public sector spending. Cisco CEO John Chambers said that Public sector order growth on a global basis decreased 4 percent in Q4. The downturn was even more pronounced in the U.S. where overall public sector order growth decreased by 7 percent.

"This should no longer be a surprise as we are now seeing similar concerns around the public sector customer segments for many of our technology peers," Chambers said during Cisco's earnings call. "As we said before, we anticipate global public sector spending to continue to be in a challenge for the next several quarters."

Cisco's bread and butter business in routing and switching also was in decline during the fourth quarter. Cisco's routing revenue was down 2 percent year-over-year while switching revenue was down by 4 percent year-over-year.

On a more positive note, Cisco is growing its data center business. In particular the Cisco UCS server system is doing well with year-over-year growth in the fourth quarter of 129 percent. Chambers said that Cisco added approximately 2,000 new UCS customers in Q4, bringing their total to 7,400 customers.

In an effort to help get the company back on track, Cisco has realigned its business units this year.

In July, the company announced big layoffs affecting at least 6,500 employees. The company has also closed down operations that no longer fit with its business model, including the Flip digital camera business which had been acquired for $590 million in 2009.

"It would be very easy to rest upon the changes that we've already made and continue to gradually evolve our company for the future. That is clearly what we will not do," Chambers said. "We will continue to accelerate and drive through the simplification process at an even faster pace."

Chambers explained that Cisco now has five priorities that it is focusing on: leadership in core, which includes routing, switching and services as well as comprehensive security and mobility solutions. The second priority is collaboration while the third is data centers including virtualization and the cloud. Cisco's fourth priority is video and number 5 is architectures for business transformation.

"These five company priorities are the key drivers of the future of the network and are core to the Internet," Chambers said. "They are, in our opinion, not only the most important but also the most difficult elements in intelligent networking, but at the same time, the hardest to provide an integrated solution from a leadership point of view."

Overall, Chambers is confident that his plan to simplify Cisco's operations and focus will lead to better results.

"In terms of why we're confident, the more we put focus on our customers, the faster we have grown and candidly, we've taken it to our competitors pretty good this last quarter, even with all the media being brutal on us," Chambers said. "We clearly won the majority of jump balls."

Chambers added that Cisco will continue to be aggressive in terms of the competition and aggressive on recruiting the people.

"We just reorganized Cisco really to focus on simplification, which means we're going to drive innovation, we're going to drive out cost and make productivity better," Chambers said.

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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