Cisco (NASDAQ: CSCO) (#NeverBetter) has announced 5,500 job losses worldwide, representing 7% of its entire workforce, despite its CEO, Chuck Robbins reporting a “great year”. Fourth quarter revenues rose 2% to US$12.6 billion. Jeremy Cowan reports.
The bad news caught the market by surprise; leaving aside the human cost, the financial impact on the business could total $700 million. There was, however, some good news as the company is preparing to transform itself with a new emphasis on the cloud, data centres, security solutions and the Internet of Things (IoT).
Cisco is keen to move away from its traditional focus on switch hardware business, in favour of a new drive into higher margin areas within software. It has identified the IoT, or as the company has long called it the Internet of Everything (IoE), as a business transformation priority.
The announcement came as Cisco reported fourth quarter and fiscal year results for the period ended July 30, 2016. Net income on a generally accepted accounting principles (GAAP) basis was $2.8 billion or $0.56 per share, and non-GAAP net income stood at $3.2 billion or $0.63 per share.
“We had another strong quarter, wrapping up a great year. I am particularly pleased with our performance in priority areas including security, data centre switching, collaboration, services as well as our overall performance, with revenues up 2% in Q4 excluding the SP Video CPE business,” said Chuck Robbins, CEO of Cisco.
“We continue to execute well in a challenging macro environment. Despite slowing in our service provider business and emerging markets after three consecutive quarters of growth, the balance of the business was healthy with 5% order growth. This growth and balance demonstrates the strength of our diverse portfolio. Our product deferred revenue from software and subscriptions grew 33% showing the continued momentum of our business model transformation,” Robbins added.
“We delivered another solid quarter and a good fiscal year, expanding both our gross margins and operating margins,” said Kelly Kramer, Cisco executive vice president and chief financial officer. “Our strong operational discipline has enabled us to drive growth and margin improvement as we continue to invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud, while also delivering shareholder value.”
Restructuring plan
“Today’s market requires Cisco and our customers to be decisive, move with greater speed and drive more innovation than we’ve seen in our history. Today, we announced a restructuring enabling us to optimise our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data centre and cloud. We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth. The restructuring will eliminate up to 5,500 positions, representing approximately 7% of our global workforce, and we will take action under this plan beginning in the first quarter of fiscal 2017,” she added.
| Q4 GAAP Results | ||||||||||||
| Q4 FY 2016 | Q4 FY 2015 | Vs. Q4 FY 2015 | ||||||||||
| Revenue (incl. SP Video CPE Business for all periods) | $ | 12.6 | billion | $ | 12.8 | billion | (2)% | |||||
| Revenue (excl. SP Video CPE Business for all periods) | $ | 12.6 | billion | $ | 12.4 | billion | 2% | |||||
| Net Income | $ | 2.8 | billion | $ | 2.3 | billion | 21% | |||||
| Diluted Earnings per Share (EPS) | $ | 0.56 | $ | 0.45 | 24% | |||||||
| Q4 Non-GAAP Results | ||||||||||||
| Q4 FY 2016 | Q4 FY 2015 | Vs. Q4 FY 2015 | ||||||||||
| Net Income (excl. SP Video CPE Business for all periods) | $ | 3.2 | billion | $ | 3.0 | billion | 7% | |||||
| EPS (excl. SP Video CPE Business for all periods) | $ | 0.63 | $ | 0.58 | 9% | |||||||
| Fiscal Year GAAP Results | ||||||||||||
| FY 2016 | FY 2015 | Vs. FY 2015 | ||||||||||
| Revenue (incl. SP Video CPE Business for all periods) | $ | 49.2 | billion | $ | 49.2 | billion | –% | |||||
| Revenue (excl. SP Video CPE Business for all periods) | $ | 48.7 | billion | $ | 47.3 | billion | 3% | |||||
| Net Income | $ | 10.7 | billion | $ | 9.0 | billion | 20% | |||||
| EPS | $ | 2.11 | $ | 1.75 | 21% | |||||||
| Fiscal Year Non-GAAP Results | ||||||||||||
| FY 2016 | FY 2015 | Vs. FY 2015 | ||||||||||
| Net Income (excluding SP Video CPE Business for all periods) | $ | 12.0 | billion | $ | 11.2 | billion | 7% | |||||
| EPS (excluding SP Video CPE Business for all periods) | $ | 2.36 | $ | 2.18 | 8% | |||||||
Under the restructuring plan, Cisco estimates that it will face pre-tax charges of up to US$700 million. These consist of severance and other one-time termination benefits, and associated costs. Cisco expects that up to $400 million of these charges will hit during the first quarter of fiscal 2017 with the remaining amount landing during the rest of fiscal 2017.
In Q4 FY 2016, Cisco announced its intention to acquire CloudLock Inc., a deal which closed in early Q1 FY 2017. The CloudLock acquisition will, says the company, “further enhance Cisco’s security portfolio and build on Cisco’s Security Everywhere strategy, designed to provide protection from the cloud to the network to the endpoint and also aligns with our strategy to deliver more cloud-based subscription services.”
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