Cisco profits sag amid price war, reorg

SAN JOSE, Calif. –  Profits sunk 36.3 percent in Cisco Systems' latest quarter as the company grinds through a major reorganization. The networking giant projected revenue growth of one to four percent and further profit declines for the next three months amid conditions that look challenging both for the company and the overall tech sector.

Sales rose 3.3 percent in Cisco's last quarter to $11.2 billion compared to the same period last year, but profits slid to $1.2 billion. For its fiscal year ending July 30, Cisco reported revenues of $43.2 billion, up 7.9 percent from its 2010 year, but profits sagged 16.4 percent to $6.5 billion.

Looking ahead, Cisco projected profits could be flat to down as much as 20 percent in the next quarter. Competitors such as Juniper Networks and Alcatel-Lucent also guided toward lower results in the next quarter.

Once a Wall Street darling, Cisco has been getting hammered after three or four disappointing quarters in a row. Increasingly the company's financials make it look similar to the giant PC companies living on high volumes and razor-thin margins.

Taking quick and deep actions, Cisco announced in July it will cut $1 billion from its costs over the next year including 6,500 in layoffs or early retirements. It had signaled a retrenchment, jettisoning the high profile Flip video business earlier this year. Much of its troubles have been blamed on jumping too quickly into non-core consumer markets.

"While I wish we didn't have to go through this, it clearly is a time for fundamental change at Cisco," said chief executive John Chambers in a conference call reporting the results and outlook.

Chambers said overall tough times primarily are due to declining government sales and a hyper-competitive communications market. He suggested that Cisco's cost cuts will position it to gain market share in a climate of price wars with top rivals including Alca-Lu in Europe and Huawei in China.

In the last quarter "we took on some of our toughest competitors right in their own countries and as you can expect that takes a little discounting to win those deals," Chambers said.