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Cisco Q3 revenue, earnings fall

Net income drops 21 per cent, but John Chambers says the company'srnperformance was solid given the economyrn

Cisco Systems’ revenue for its third fiscalquarter fell 17 per cent from a year earlier, while net income plunged 21per cent to US$1.3 billion, or $0.23 per share.

Despite the declines, Cisco delivered solid financial performance given theweak global economy, and is well-positioned for the eventual recovery,Chairman and CEO John Chambers said in a statement. The dominant networkingvendor is considered a bellwether of technology, and its results andforecasts are being closely watched as signs of the economy’s health.

Revenue fell to $8.2 billion in the quarter, which ended April 25.

Excluding certain one-time items, Cisco reported net income of $1.08billion, or $0.30 per share. Analysts polled by Thomson Reuters had expectedearnings of $0.25 per share on revenue of $8.07 billion.

In its fiscal fourth quarter, Cisco expects revenue to again fall between 17per cent and 20 per cent from a year earlier, executives said on a conferencecall to discuss the results. But Chambers had some encouraging news on theglobal economy. Customers around the world have recently told Cisco they areseeing a “leveling off,” though at a disappointing rate of year-over-yeargrowth, after a long period of continuing deceleration, he said.

Cisco also is standing by its long-term forecast of year-over-year revenuegrowth between 12 per cent and 17 per cent, Chambers said. The key to that isCisco’s position as the only vendor with an effective architecture thatspans home, service-provider and enterprise networks, he said.

However, during its third quarter business was down around the world in thecompany’s major product categories. Routing orders fell 32 per cent from ayear earlier, switching by 20 per cent, and advanced technologies by 12per cent. The latter category includes the many new product areas Cisco isdeveloping, including video, unified communications and security. Orderswere down in all those categories, and the company’s storage networkbusiness saw orders fall 45 per cent.

Orders were down more than 20 percent in all regions of the world, rangingfrom a 22 per cent decline in the U.S. and Canada to a 31 per cent drop inemerging economies outside Asia.

The company is on track to cut annual costs by $1 billion by the end of thisyear and believes it will reach a “stretch goal” of cutting $1.5 billion,Chambers said. Among other things, Cisco cut travel expenses by about 50per cent from the second quarter, he said. The company is still relying on a”pause” in hiring and “limited restructuring” to cut its staffing costs,Chambers said. Under that ongoing restructuring, Cisco is reallocatingresources to its top priorities. Its total head count declined by about 760in the quarter to 66,558.

“At the present time it looks reasonably good … that we’ll be able toavoid a broad-based layoff or salary reduction,” Chambers said.

It was a very active quarter for Cisco, in which the company announced itsfirst servers as part of its Unified Computing initiative on March 16 andacquired Pure Digital, the maker of Flip brand pocket camcorders, just fourdays later.

Chambers acknowledged Cisco’s move into computing will affect itsrelationships with other enterprise vendors. “We will get closer to somepartners and compete more with others,” Chambers said. He also gave apersonal endorsement of Pure Digital’s products, saying he always carries aFlip camera as well as a PDA (personal digital assistant) in business aswell as his personal life.