Cisco endures profit pain to gain 'competitive advantage'

Networking monolith claims shedding jobs and non-core technologies will allow it to beat rivals in FY12

Cisco's ongoing restructuring plan eroded its profitability during an up-and-down fourth quarter, but the networking giant maintains it is entering FY12 in optimum fighting condition.

For the three months to the end of July, revenue was up 3.3 per cent annually to $11.2bn (£6.9bn) while, for the full year, sales grew 7.9 per cent to $43.2bn. But fourth-quarter operating profit fell 37.4 per cent on the corresponding period last year to $1.46bn. Across the whole of FY11, operational income declined 16.3 per cent to $7.67bn.

Cisco spent FY11's closing quarter implementing a widespread transformation plan which included axing elements of its consumer division and shedding 11,500 full-time workers across the business. Other operations were streamlined and investment in some non-core technologies was also scaled back.

It first became apparent that the winds of change were set to blow through Cisco in April, when chief executive John Chambers sent all his staff an astonishing 1,500-word memo outlining how and why the firm had "lost credibility". Since then, the vendor has set into action a restructuring plan designed to save it an annual $1bn in operational costs.

In a conference call with investors, transcribed by Seeking Alpha, Chambers (pictured) claimed the execution of the plan has allowed his firm to get the jump on its rivals.

"We believe the changes that we implemented, well ahead of our peers, will now be a competitive advantage for us as we go forward in this uncertain macro environment," he said. "During periods of uncertainty, customers value companies with a strong balance sheet, existing strong relationships with these customers and one that can continue to help them with their innovation.

"It would be very easy to rest upon the changes that we have already made and continue to gradually evolve our company for the future. That is clearly what we will not do. We will continue to accelerate and drive through the simplification process at an even faster pace. While the changes we have made and plan to make have been dramatic, we believe that this is an ongoing process in terms of our simplification goals, not lasting several quarters, but several years."