Cisco Systems Inc, the largest maker of computer-networking equipment, said fiscal fourth-quarter earnings plunged 99 percent on lower demand and the company ended the fiscal year with a US$1.01 billion loss.
Sales this quarter will be unchanged to down 5 percent from the previous period, Chief Executive John Chambers said on a conference call. Net income in the fourth quarter dropped to US$7 million, or break-even per share, from US$796 million, or US$0.11, a year earlier, Cisco said. Revenue in the period ended July 28 fell 25 percent to US$4.3 billion from US$5.72 billion.
Cisco declined to give a forecast beyond the fiscal first quarter. Chambers said the company's "long-term visibility is still challenging." Chambers has cut 8,500 jobs this year and trimmed product lines to cope with a US economic slump and decreasing orders from phone and Internet companies.
"No one really knows when the economic and capital spending will bottom out and turn up," Chambers said on the conference call. "We are becoming cautiously optimistic that [a bottom] may be achieved within the next one to two quarters in the US." Cisco shares today fell US$0.28 to US$19.26 on the NASDAQ Stock Market and slipped to US$18.90 in after-hours trading following the report. They have lost half their value this year.
For the full fiscal year, Cisco posted a loss of US$0.14 a share, compared with net income of US$2.67 billion, or US$0.36, a year earlier.
Excluding acquisition-related expenses and an inventory gain, fourth-quarter profit would have been US$163 million, or US$0.02 a share, matching the average estimate of analysts polled by Thomson Financial/First Call. On that basis, the results aren't in accordance with generally accepted accounting principles. Investors listened to Chambers for any hints that an economic recovery was on the way. They were left without much information about when such an event might happen, and they had to read between the lines to find positive signs.
Ray Hirsch, an analyst at American Express Financial Corp, said he estimated from various numbers presented on the call that orders from US corporations, schools and government agencies rose 11 percent to 12 percent from the previous quarter, better than he expected. Hirsch also said he found more assurance in Chambers's words than in the prior two earnings conference calls in February and May.
"His voice was a little more shaky" previously, Hirsch said. "He certainly was sounding more confident of what he was saying than on the last two conference calls." The forecast for the first quarter of fiscal 2002 implies that revenue will be US$4.08 billion to US$4.3 billion, down from US$6.52 billion a year earlier. That compares with the US$4.29 billion average estimate of five analysts polled by First Call.
He didn't give a per-share profit forecast. Analysts' estimates range from break-even to 6 cents a share, with an average of US$0.04, according to First Call. Estimates for the fiscal year ending next July range from US$0.06 to US$.36 a share, with an average of 26 cents. Excluding certain items, Cisco earned US$0.41 a share in the year just ended.
"I wouldn't be surprised to see it come down to US$0.21 to US$0.23" a share, said Steve Mygrant, an analyst at Fifth Third Bancorp, which held 4.96 million Cisco shares as of March. He forecasts US$.28 a share. "If the company's not able to improve its sequential revenue growth in the next quarter or two, they're going to have to address the cost structure." Fourth-quarter revenue declined 9.1 percent from the third quarter's US$4.73 billion, in line with Cisco's forecast of sales being unchanged to down 10 percent. It also matched the average analyst estimate from a First Call survey.
Chambers acknowledged that his prediction that sales in Cisco's industry can rise 30 percent to 50 percent a year in healthy economies differs from many analysts' forecasts of 15 percent to 20 percent growth.
"We continue to view [30 percent to 50 percent growth] as a stretch but achievable goal for Cisco," he said on the call.
Chambers said the company's goal is to "grow as fast as the market," with a "stretch" goal of exceeding such a level.
Fifth Third's Mygrant said "it seemed the way they discussed that topic would suggest they're going to have to back down [from the prediction] in the next quarter or two. Those numbers are too high," he said.
The company's book-to-bill ratio exceeded 1, meaning Cisco had more orders than revenue during the fourth quarter.
Chief Financial Officer Larry Carter also touted Cisco's US$18.5 billion in cash and investments, up US$1.2 billion from the third quarter, and its lack of long-term debt.
Still, Cisco will reduce its employee count this quarter through "attrition, both voluntary and involuntary,'' Carter said. He didn't elaborate. Cisco had 38,099 employees at the end of the quarter, down 1,561 from the third quarter.
During the quarter, Cisco had US$347 million of acquisition-related expenses such as amortization of goodwill; a US$187 million gain for using components and other inventory previously deemed worthless, reducing a US$2.25 billion third-quarter charge; and US$5 million of payroll taxes on stock-option exercises, corporate controller Dennis Powell said.
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