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Summary:

Cisco’s massive restructuring plan appears to be working, as the company reported better-than-expected revenues and earnings in its fiscal fourth quarter. The plan is designed to simplify its sales and engineering teams by limiting the number of decision makers and aligning sales by region.

John Chambers, Cisco CEO
John Chambers, Cisco CEO

Cisco CEO John Chambers

Cisco surprised Wall Street analysts today with better-than-expected revenues and earnings, after announcing a massive restructuring plan that the company announced earlier this year. On the company’s fiscal fourth quarter earnings call, Cisco gave an update on that plan, which was put into place after the company saw a significant slowdown.

The good news is that, at least for now the plan seems to be working. Cisco’s fourth quarter earnings of 40 cents a share were better than the 38 cents a share that Wall Street was expecting, and revenue of $11.2 billion was above analyst estimates of $10.9 billion.

According to Cisco COO Gary Moore, the company has simplified the company’s organization in an effort to make swifter decisions. That plan includes a reduction of 6500 employees, the sale of its Juarez, Mexico set-top box factory and a broad realignment in its sales and engineering teams.

Moore said Cisco has re-aligned approximately 23,000 employees within the company, including about 4400 employees in the sales organization. Cisco is aligning that team along regional lines, ensuring that 90 percent of the sales force are managed by regional sales leads, compared to about 70 percent before the quarter. By doing so, Cisco will improve the time it takes to close sales and recognize bookings.

The simplification of the organizational structure should also help accelerate technology innovation. In addition to on the engineering side, the company reduced the number of product leads from seven down to two co-leads. It’s also simplifying its technology groups, for instance, combining its routing and switching infrastructure teams into one group, as well as putting together its businesses that work on unified communications and telepresence.

Cisco is also working to reduce bottlenecks in the organizational structure by reducing headcount in the management team. According to Moore, it lowered the number of “VP and above personnel” by about 17 percent. All in all, Cisco hopes the new organizational structure will help make it more nimble and better able to compete in a rapidly changing market.

While early results have been positive, Cisco warned that the hard work might still be ahead. Due to a good deal of market volatility, Cisco declined to provide forecasts beyond the next quarter. With first-quarter revenue guidance of 1-4 percent over the previous fiscal first quarter, Cisco CFO Frank Calderoni also urged analysts to model conservatively over the next several quarters.

Despite the structural pain that Cisco hs seen over the past few quarters, the company believes that with the reorg largely behind it, the company will be better positioned to face competitors, particularly as it believes that they too will soon have to deal with the same issues that it faced earlier this year.

  1. Nice to see some good news for the folks on Tasman but I can’t believe the pain is over yet. The Asian competition is not going to allow them to sit back and retain the margins they have been used to. Cisco needs to keep innovating to maintain a reason for network operators to buy from them.

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  2. Hi Ryan,

    Cisco’s Q4’FY11 operating cash flow, product gross margin and router sales sequentially declined.

    Most alarming to me was the -$408 million drop in Cisco’s Q4 Y/Y (Year-Over-Year) operating cash flow!

    A comparison of Cisco’s FY11 sales to Cisco’s FY10:

    Total net sales climbed +$3.178 billion, up +7.9% to $43.218 billion from $40.040 billion.

    Router sales climbed +$438 million, up +6.6% to $7.069 billion from $6.631 billion.

    Switch sales dropped -$92 million, down a 6th of a percent -.006 to $13.437 billion from $13.529 billion.

    New product sales climbed +$1.623 billion, up +14.2% to $13.035 billion from $11.412 billion.

    Other product sales climbed +$137 million, up +16.1% to $985 million from $848 million.

    Services sales climbed +$1.072 billion, up +14% to $8.692 billion from $7.620 billion.

    And here’s a comparison of Cisco’s FY11 new product sales to Cisco’s FY10:

    Video home sales were down a slight -$2 million to $4.262 billion from $4.264 billion.

    Collaboration sales climbed +$984 million, up +31.1% to $4.147 billion from $3.163 billion.

    Security sales dropped -$146 million, down -8.4% to $1.582 billion from $1.728 billion.

    Wireless sales climbed +$301 million, up +26.3% to $1.443 billion from $1.142 billion.

    Data center sales climbed +$486 million, up +43.5% to $1.601 billion from $1.115 billion.

    View more…

    bradreese.com/blog/8-10-2011.htm

    Sincerely,

    Brad Reese

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  3. Hi Ryan,

    Palo Alto Networks is the culprit behind Cisco’s -8.4% FY11 security sales decline.

    Cisco reported a respectable +7.9% net sales increase for its FY11.

    Additionally, 6 of Cisco’s 9 sales product reporting categories had robust average FY11 sales increases of +22.9%.

    Anxiously though, 2 of those 9 product categories, switches and video connected home (representing 41% of Cisco’s total FY11 net sales), had slight to negligible sales declines of less than -1%.

    However, what really caught my attention was the unusual -8.4% drop in Cisco’s FY11 security sales.

    So why would that specifically catch my attention?

    Well mostly because 25-days ago, security vendor Check Point Software Technologies reported a 2nd Quarter Y/Y (Year-over-Year) sales increase of +15%.

    Meanwhile by comparison this week, Cisco reported that its 4th Quarter Y/Y (Year-over-Year) security sales dropped a worrisome -21%.

    Wow I thought, so I put in a call to my Cisco security expert, Dual CCIE #18532 Security/R&S – George Morton, to find out why Cisco’s security sales were in such a steep decline.

    Naturally, I expected Morton to blame the well known Check Point as the “culprit” in Cisco’s security sales misfortune, but I was quite surprised to learn that according to Mortonit it was tiny little-known firewall vendor Palo Alto Networks causing the Cisco security sales decline.

    Heck, even though I’m already familiar with Palo Alto Networks because of previous blog stories that I’ve posted, I’m still surprised.

    I mean, what possibly could tiny little Palo Alto be doing to upstage the mighty Cisco?

    Well, Morton basically confirmed what Palo Alto Networks stated in its press release August 1st:

    “We are rapidly replacing the firewalls the incumbent vendors have sold to enterprises over the past 15 years.”

    However Cisco security expert, Dual CCIE #18532 Security/R&S – George Morton, added a slight twist:

    “Palo Alto Networks is taking your firewall services from 1995 and moving them to 2012.”

    View more…

    http://www.bradreese.com/blog/8-12-2011.htm

    Sincerely,

    Brad Reese

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