Cisco bounces back

Cisco has been crowing about its rebound, and with good reason. What a difference a year makes.

As CEO John Chambers said to a small group of reporters pulled together at Cisco TelePresence facilities around the country last week, it's a lot more fun to be giving a company update now than it would have been at this time last year.

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If you'll recall, a year ago Cisco's stock was getting hammered as the company posted lower than expected sales, profit and margin numbers, and was wrestling with multiple concurrent product transitions.

So Cisco got to work. Early last year the company named its first ever chief operating officer, simplified its complex management council structure, reorganized sales, shuffled some bodies in engineering, laid off 6,500 employees, killed its Flip consumer video business, and sold its CATV set-top box factory in Mexico to outsourcing giant Foxconn, shifting some 5,000 workers in the process.

"Reinvention is hard," Chambers says. "We have done this five or six times over the last two decades, but it is still hard. It has been a traumatic 15 to 18 months."

But it is working. In Cisco's fiscal second quarter earnings call a few weeks ago Chambers announced the company had achieved its goal of eliminating a $1 billion in expenses a quarter earlier than expected and had driven revenue up 11% in the quarter compared to the same period last year. In terms of core product categories, switching sales grew 8% and high-end routing was up 11%.

He blames last year's setback, in part, on the cost performance advances inherent in the company's largest-ever product portfolio refresh. "That hit the bottom line more than expected," he says. But otherwise he is bullish on Cisco's ability to execute.

"We normally see things two to four quarters ahead of our peers," he says of the company's ability to recognize big transitions. "And most of our big bets on these transitions have pretty much come through." As evidence he points to leadership positions in VoIP and big gains in videoconferencing.

Even the company's bold gamble on servers is paying dividends. Cisco's Unified Computing Environment is now a $1 billion product line and sales grew 91% in the last quarter alone, Chambers says. Cisco has more than 10,000 UCE customers, which would indicate many are small shops, but Chambers says 55% of UCE volume goes to large enterprises.

What's coming up next? Among other things, Chambers says we can expect to see Cisco get more active in mergers and acquisitions, and for the company to flesh out its security architecture and put more meat on it.

Chambers is the first to admit there is more work to be done, but the $45 billion company seems to be back on track and ready for the next round.

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