Cisco profits plummet for second quarter

A one-off charge for faulty memory chips sees profits for the networking firm tumble by almost 55%, while revenues decline 8% year on year

Profits for Cisco have fallen dramatically in the past three months, according to figures released by the firm this week.

Revenues fell by 8% year on year to $11.2bn in its second quarter results, and profits plummeted by almost 55% to $1.4bn. The latter figure was mostly blamed on a one-off charge of $655m for faulty memory chips shipped within a number of products between 2005 and 2010.

Product revenue was down by 11%, which Frank Calderoni, chief financial officer (CFO) at Cisco, blamed on lower margins on its high-end products and a significant 20% drop in service provider video orders. Even its next-generation routing business saw revenue declines of 11% on a 5% drop in orders and switching revenue declined 12%.

However, service revenue rose by 3% and its datacentre revenues, including its UCS product line, were up by 10%.

In its last results call CEO John Chambers predicted a fall of up to 10% due to failing momentum in the emerging markets. Revenues declined across the regions 3% overall but this fall hit 10% when taking only BRIC countries – Brazil, Russia, India and China – and Mexico into account.

“While we saw some improvement quarter to quarter, emerging markets remain challenging… [and] while this economic trend remains out of our control, we have put in place important programs and efforts designed to capture growth and position Cisco to capture share even if these markets remain challenging,” he said.

Numbers looked more promising in the US, with orders up 13% in US enterprise and 10% in US commercial sectors, but public sector sales fell by 4% over the quarter.

EMEA and Russia fell by 2% but Chambers was keen to highlight how the UK and Northern Europe were seeing “good momentum,” while Southern Europe was the challenge.

"We delivered the results we expected this quarter,” he added. “I'm pleased with the progress we've made managing through the technology transitions of cloud, mobile, security and video.”

Our transition is from selling boxes like most of our peers to selling business outcomes

John Chambers, CEO, Cisco

"Our financials are strong and our strategy is solid. The major market transitions are networking centric and as the Internet of Everything becomes more important to business, cities and countries, Cisco is uniquely positioned to help our customers solve their biggest business problems."  

Cisco admitted shedding 1,000 staff in the past two quarters, boosting non-operating expenses but cutting its headcount to just over 74,000.

But the next quarter wasn’t looking any better for the firm, with Chambers predicting another revenue decline of between 6% and 8% in the third quarter.

“Our transition is from selling boxes like most of our peers to selling business outcomes,” he concluded. “Our delivery is through architectures, partners and services and we will help our customers utilise their 180 billion Cisco install base to capture the most value today and build for tomorrow.”

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