Cisco Gives Weak Revenue Forecast Showing Recession Biting

Ian King (Bloomberg) -- Cisco Systems Inc. gave a lackluster sales forecast for the current period, a sign that businesses are spending less in the pandemic-driven recession.

Chief Executive Officer Chuck Robbins pledged to reduce expenses by $1 billion through a reorganization that will include job cuts and early retirement for some workers. The plan will cost about $900 million, which will include severance and other “termination benefits,” the company said in a regulatory filing. Chief Financial Officer Kelly Kramer is also leaving.

Revenue will fall 9% to 11% from a year earlier in the fiscal first quarter, which ends in late October, the San Jose, California-based company said Wednesday in a statement. Analysts on average had projected a decline of about 7%. Adjusted profit will be 69 cents to 71 cents a share, lower than Wall Street expectations of 76 cents, according to data compiled by Bloomberg.

Cisco shares fell 6.5% in extended trading. The stock closed at $48.10 in New York earlier.

A large chunk of Cisco’s revenue comes from government agencies, small and medium-sized businesses and providers of internet and online video services. While some larger companies are still spending, many smaller customers have cut spending to adjust to an economic slowdown sparked by Covid-19 lockdowns.

Related:The COVID-19 Pandemic’s Impact on Cloud Revenue Is a Mixed Bag

In Cisco’s Americas region, where sales dropped 12%, demand hasn’t improved in the last 90 days and the U.S. needs Congress to provide another stimulus package, Robbins said in an interview.

“As you move down the customer stack, things just get weaker and weaker as the customers get smaller and smaller because they just don’t have the financial wherewithal,” he said. “This country is still driven by small and medium-sized business for hiring and everything else. I’m concerned about what happens next.”

Robbins said that optimism about a rebound in tech company earnings has been stoked by consumer demand in certain areas. But major investments in corporate infrastructure will require more evidence of an improving economy, he cautioned.