Cisco Shares Fall On Q2 Outlook; CFO Calderoni Stepping Down

Cisco Systems Wednesday reported better-than-expected first-quarter earnings, but issued a second-quarter outlook that missed analyst estimates, causing its shares to tumble 1.5 percent in after-hours trading.

"As we said last quarter, we are executing and progressing as I expected and I am very comfortable with our growth trajectory," Cisco CEO John Chambers said Wednesday on a conference call with analysts. "We are pleased that, in spite of the headwinds, we are growing again."

The San Jose, Calif.-based networking leader also said Chief Financial Officer Frank Calderoni is stepping down Jan. 1. Calderoni, who will remain with Cisco until January in an advisory role, will be replaced by Kelly Kramer, Cisco's senior vice president of Business Technology and Operations Finance.

[Related: Latest Cisco Restructuring To Impact 6,000 Jobs]

Calderoni has been with Cisco 10 years, seven of those as CFO.

"One of Frank's best and most defining leadership characteristics is his focus on building incredible leadership teams," Chambers said. "Almost three years ago, Frank hired Kelly, and it is a credit to the work of Frank that the leadership team and the board have concurred in appointing Kelly to the role of CFO."

For its first fiscal quarter, ended Oct. 25, Cisco reported revenue of $12.2 billion, up 1.3 percent from the year-ago period. The results met analyst estimates and marked Cisco's return to revenue growth after several quarters of decline.

Cisco's net income for the quarter was $1.8 billion, down 8.4 percent compared to the same quarter last year.

Looking ahead, Cisco said it expects second-quarter revenue to rise between 4 percent and 7 percent, missing analyst estimates of 8 percent.

Cisco said its cautious forecast is due primarily to lower-than-usual spend in the service provider and emerging markets. In the first quarter, Cisco said its U.S. service provider product orders were down 18 percent year-over-year.

By product, Cisco's routing business in the first quarter fell 4 percent year-over-year, while its switching business grew 3 percent, returning to growth after three consecutive quarters of decline.

Chambers attributed some of that switching growth to strong sales of Cisco's new Nexus 9000 switches, which serve as the hardware foundation for its Application Centric Infrastructure (ACI) software-defined networking (SDN) solution.

Cisco said there are now more than 900 Nexus 9000 customers, up from 580 last quarter.

"A year ago, we were fighting an SDN perception battle, with competitors using PowerPoints instead of products," Chambers said on the call. "Today, with ACI, we are bringing programmability and automation to networking on a scale well beyond what competitors define as SDN. Now we are in the market with products and solutions and don’t see either traditional box competitors or the PowerPoint newcomers able to keep up."

Meanwhile, Cisco's data center business, home to its Unified Computing System (UCS) converged infrastructure solution, grew 15 percent year-over-year, while its wireless business grew 11 percent.

Cisco's security business was also a bright spot, up 25 percent compared to the same quarter last year. Chambers said much of this growth stemmed from the ongoing integration between Cisco's legacy security products and those it gained through its 2013 acquisition of Sourcefire.

Cisco did not give specific sales figures for its new Intercloud platform, but did say that it added 30 new Intercloud hosting partners in the first quarter, including NTT Data and Deutsche Telecom. Intercloud is now hosted in 250 data centers worldwide across 50 countries, Cisco said.

Chambers on the call also touched on Cisco's recent reorganization efforts, which involved the company shedding 6,000 jobs, or roughly 8 percent of its global workforce, starting in the first quarter. Cisco President Rob Lloyd also told CRN in August that a big aim of the restructuring is to drive tighter integration between Cisco's sales and engineering teams, and to transition the Cisco engineering unit to more of a DevOps or Agile development model.

Chambers said the results of those efforts have been positive and that employee morale is high.

"Thanks to a lot of hard work, which will continue, I believe we have positioned Cisco to lead the market transitions in front of us to the benefit of our shareholders, our customers, our partners and our employees," Chambers said.

PUBLISHED NOV. 12, 2014