Cisco Shows Signs of Pressure

Cisco Systems Inc. showed more signs of pressure on its flagship networking hardware in the latest quarter, despite growth in smaller businesses it entered more recently.

The big Silicon Valley company said first-quarter net income fell 4.4%, largely due to restructuring charges, while revenue declined 2.6%. Cisco projected that revenue would decline again in the current period.

Shares of the company fell 4.3% after hours.

Cisco's charges stem largely from a plan announced in August to shed 5,500 employees—7% of its workforce—in the latest of a series of responses to market shifts that include customers opting for software and services over hardware. The company said its headcount fell by 1,326 during the quarter to a total of 72,385.

Chuck Robbins, Cisco's chief executive, characterized its results as good "despite a challenging global business environment" and said the company "performed well in our priority areas."

The challenges facing Cisco include a growing preference among some web companies and network operators to avoid big-name hardware vendors. Some are choosing to run networking software on inexpensive commodity-style switching systems from vendors such as Taiwan's Quanta Computer Inc. Other customers are turning to external cloud services rather than buying and managing their own computers and networking devices.

Cisco said on Wednesday that revenue in switching hardware, its largest business, declined 7%. Routing revenue rose 6%.

Mr. Robbins, who just completed his first year as chief executive, has tried to shift Cisco's focus toward faster-growing businesses built on software and services. Cisco said revenue from its security business rose 11%. Revenue from its collaboration segment, however, fell 3%.

In all, Cisco reported net income for the quarter ended Oct. 29 of $2.32 billion, or 46 cents a share, compared with profit in the year-earlier period of $2.43 billion, or 48 cents. Revenue declined to $12.35 billion from $12.68 billion.

Excluding restructuring charges and other one-time items, Cisco put adjusted earnings per share at 61 cents. Analysts polled by FactSet had projected earnings on that basis of 59 cents.

For the current period, Cisco projected adjusted profit of 55 cents to 57 cents a share and said revenue would fall 2% to 4%. Analysts on that basis had projected earnings per share of 59 cents on revenue of $12.155 billion.

Write to Don Clark at [e-mail]

(END) Dow Jones Newswires

November 16, 2016 16:45 ET (21:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.