Networking equipment giant Cisco (News 
- Alert) lowered its long-term sales forecast on Tuesday as it seeks to stabilize its core businesses following an aggressive restructuring program.
Chief Financial Officer Frank Calderoni told a group of investors and analysts that the company has cut its revenue growth expectations in half, to between 5 percent and 7 percent per year over the next three years. Cisco had long forecasted annual sales growth of 12 percent to 17 percent, but those expectations were clearly unrealistic following four years of missing their target.
The news, which is far from surprising, comes four months after CEO John Chambers (News - Alert) began a massive reorganization of the company that included the elimination of the Flip video camera unit, an overhaul of Cisco's management structure and the purging of around 6,500 employees.
Cisco, long been criticized for spreading itself too thin by trying to compete in dozens of markets, is now focusing on five core areas, including its switching and routing units, which have been hurt from increased competition from rising rivals like China's Huawei (News - Alert) Technologies – a company that Chambers referred to as a “very tough” competitor.
Although cutting sales expectations is never a good thing, Cisco – and its investors – are acting cautiously optimistic. Due to the aggressive organizational changes, Cisco expects that its earnings will grow faster than its revenue, at around 7 percent to 9 percent per year.
In addition, analysts polled by FactSet were anticipating sales growth of around 5.5 percent this year, a half a percentage point lower than the midpoint announced on Tuesday.
“Growing earnings faster than revenue is also a plus,” BGC Partners analyst Colin Gillis told Reuters. “Everybody knew the old targets were off the table. It's not a surprise, it's not as bad as it could have been.”
Cisco shares closed Tuesday at $16.35, up 1.6 percent on the day.
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Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.
Edited by Jennifer Russell
