Cisco ponders lay-offs despite solid quarter

Cisco chief John Chambers expects revenues to drop by between 15 and 20 per cent in the first quarter

Cisco Systems has reported higher than expected quarterly profits in an overall solid financial quarter for the firm, but said that it expected to see a 15 to 20 per cent fall in revenue in the current quarter compared to year ago.

The networking firm is beginning to feel the impact of the global recession, and said that net profit for the last quarter of 2008 fell 27 per cent from $2.1bn (£1.4bn) in the same quarter of 2007. The results, however, were marginally better than financial analysts had been predicting.

Cisco's revenues dropped to $9.1bn (£6.2bn) in the fourth quarter, a slump of some 7.5 per cent, as sales of networking components like switches and routers softened.

The firm, which closed its offices and operations across North America for four days over the new year to cut costs, now claims that it may have to lay off staff in the coming quarters.

Cisco chief executive John Chambers told media and analysts during an earnings conference call that the company would see revenues drop by between 15 and 20 per cent in the first quarter of 2009, meaning that the firm would have to accelerate its alignment of resources, prioritise future growth opportunities and gradually decrease operating expenses.

Any restructuring within Cisco to combat the effects of the financial crisis could potentially lead to the loss of 10 per cent of the company's 67,000-strong workforce, according to Chambers.

He remained upbeat, however, stating his belief that the economy would recover sooner than most people believe. "The majority of our customers are guessing that [the downturn will last until] 2010, while a smaller group sees the upturn toward the end of 2009," he said.

Chambers added that, due to the co-ordinated activities of global central banks and the effects of large stimulus packages, he tended "to be a little bit more optimistic than most of my customers. Time will tell if that optimism is appropriate."

Shareholders did not seem to share Chambers's enthusiastic sentiments, however. Cisco shares fell 3.72 per cent to $15.25 (£10.46) in after-hours trading.