Cisco continues to morph forms as sales fall

Networking giant expects Q4 sales to tumble by four to six per cent as it announces another 1,100 job cuts

Cisco is cutting another 1,100 staff as it accelerates its efforts to reshape its business towards software and recurring revenue.

The networking giant's shares were knocked twice yesterday, first by concerns around the latest Trump headlines, and then by market reaction to its Q3 results.

Revenues for its third quarter ending 29 April 2017 fell one per cent year on year to $11.9bn (£9.1bn), with routing, collaboration and datacentre sales sliding two, four and five per cent respectively, and service provider video slumping 30 per cent.

But it was Cisco's unexpectedly weak guidance that caused its shares to fall seven per cent in after-hours trading last night. It expects Q4 revenues to fall by between four and six per cent annually.

This came on top of a share slide Cisco suffered amid a general fall in US tech stocks during the day, widely attributed to jitters over events in the White House, whose policies have been perceived as a potential boon for Silicon Valley shareholders. Apple and Microsoft fell three and 2.3 per cent, respectively, with Nvidia falling six per cent and AMD by 12 per cent.

The fresh round of job cuts come on top of a restructuring plan Cisco announced last August that will affect 5,500 jobs.

CEO Chuck Robbins (pictured) said he was pleased with the progress Cisco is making on its multi-year transformation of its business, the effects of which could be seen in the Q3 results.

Recurring revenue now makes up 31 per cent of the total revenue, up from 29 per cent year on year.

Since quarter end, Cisco has announced its intention to acquire three more software businesses to help it morph forms, including software-defined WAN outfit Viptela and AI specialist MindMeld.

"We will continue to invest in growth areas as we move the business towards more software and recurring revenue and return value to shareholders," said Cisco CFO Kelly Kramer.

EMEA and Americas sales were flat, while APJC revenues fell two per cent. Wireless and security both grew during the quarter, by 13 per cent and nine per cent respectively.

On a conference call, transcribed by Seeking Alpha, Robbins expanded on his vision for Cisco.

"We're on a journey which as we consistently stated, will take a number of years, but we're pleased with the progress we're making," he said.

"As our customers add billions of new connections in the years ahead, the network will become more critical than ever. They will be looking for intelligent networks that deliver automation, security and analytics that help them derive meaningful business value from these connections. These will be delivered through a combination of new platforms as well as software and subscription-based services which we've been focused on accelerating over the last 18 months."