Even though Cisco Systems Inc. saw a growth in the smaller businesses it has chosen to enter recently, there were some signs of increasing pressure on some of the company’s renowned networking hardware. The large Silicon Valley firm disclosed that due to the restructuring changes they had made, the net income in its first quarter had undergone a decline of about 4.4% and there was also a 4.6% decline in revenue. It was projected by the company that there would be a further decline in revenue in the ongoing quarter. Based in San Jose, California, Cisco has been considered a bellwether for changes in corporate technology spending.
The chief executive of the company, Chuck Robbins, said that the cautious outlook of the company was mostly because they were expecting the tepid economic conditions to remain unchanged and there was also a weak demand from communication-service providers. During a conference call, he said that there was unlikely to be any improvement in this regard, but he said that some pro-business policies could be introduced due to the Donald Trump presidency. The restructuring costs in the first quarter of Cisco mostly stem from a plan that had been revealed in August for shedding 7% of its workforce, which equals to 5,000 employees.
This is one of the latest responses in a series that have been made due to market shifts as customers are choosing to forgo hardware in favor of software and services. During a quarter, the head count of the company reached 72,385, which is a decline of 1,326. Amongst the challenges the company is facing currently, there is one involving the practice of network operators and web companies to avoid the big-name vendors. In fact, some customers have opted to run networking software on commodity-style switching systems, which are inexpensive and are provided by vendors like Quanta Computer Inc. from Taiwan.
Other customers have opted to go with cloud services instead of purchasing and managing their own networking devices and computers. Other factors were also cited by Mr. Robbins, which included the reluctance exhibited by customers for upgrading the switching gear that’s used on corporate campuses. The largest business for Cisco Systems Inc. is its switching hardware and revenue from this unit underwent a 7% decline while there was a 6% rise in revenue from routing. Having completed his first year as CEO of Cisco, Mr. Robbins has made an effort to shift the company’s focus towards faster-growing businesses that are based on services and software.
The firm also revealed that there was an 11% increase in revenue from its security business. However, there was a 3% decline in revenue from the collaboration segment as sales of videoconferencing gear were reduced even though services such as WebEx experienced a growth in services. Cisco added that there was a 3% decline in the revenue from data center and this also includes sales of server systems. The CEO said that the company was being affected because companies were moving away from hardware. Even sales of wireless gear declined by 5%.