Cisco posts solid financial results

Hiring freeze planned as networking giant braces for further economic turmoil.

Cisco Systems posted solid financial results for its first quarter despite the worsening economy, but the networking giant plans to institute a hiring freeze as it braces for further economic turmoil.

Sales for the quarter, which ended October 25, reached US$10.3 billion, up 8 percent compared to the same period last year.

But net income was essentially flat compared to the same period a year earlier, at US$2.2 billion based on generally accepted accounting practices.

Not counting certain charges, Cisco's earnings per share for the quarter were US$0.42, beating analyst expectations of $0.39, as polled by Thomson Reuters.

While Chairman and CEO John Chambers said he's confident that Cisco can weather -- and ultimately even prosper from -- the current economic storm, he outlined ways that Cisco plans to cut back. The hiring freeze, combined with other efforts such as a reduction in travel, events and marketing expenditures, should help the company reduce expenses by US$1 billion from its original budget for its second quarter, he said during a conference call Wednesday.

Chambers painted a grim picture of the financial crisis. Cisco saw a dramatic downturn in orders during October, a month few other large companies have yet reported on. Orders were up 7 percent in August, but by October they had decreased by 9 percent compared to the previous year, he said. Overall, orders decreased 3 percent in the quarter.

"The economic crisis was becoming more apparent on a global basis in October," Chambers said.

The enterprise segment was hit hardest for Cisco. Sales to enterprises dropped 11 percent in the quarter, while sales to service providers and the public sector were flat, he said.

The downturn started in the US and spread to Europe and other regions, but there were a few bright spots for Cisco during the quarter, including Japan and Germany, he said.

Assuming that October's performance continues in the coming months, Cisco is projecting a revenue decrease for its next quarter of 5 percent to 10 percent, Chambers said.

Despite its efforts to cut back spending, Cisco plans to use its bulk to take advantage of how the downturn might affect competitors. "As we've done before, we'll be leveraging the market slowdown to move into [adjacent markets]," Chambers said.

Frank Calderoni, Cisco's chief financial officer, said the company expects to invest in markets where its networking gear is extending, such as video, collaboration and data center virtualization.

Despite the expected effects of the economic downturn, Chambers has high hopes that the economy will change for the better relatively soon. "We could not invest as aggressively if we thought this would be long in duration," he said.

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