Cisco Systems Inc. (CSCO) is the closure of the Flip video-sharing to give President and CEO John Chambers to begin the greatest challenge of shoring up the core business of routers and switches.The network equipment maker faces biggest threat of low-cost rivals such as Juniper Networks (JNPR) and Hewlett-Packard Co., routers and switches that businesses and help companies manage traffic Internet, representing about half the revenue of the company.
Cisco, which said yesterday it is cutting 550 jobs as part of closing the flip, turn affected the profits and market share. In a traditional network gear is the highest margin source of revenue, bringing its dominance in the industry. After the entry of new competitors use cheaper alternatives, Cisco is struggling to maintain its leadership position without a corresponding reduction in the prices of its competitors, " said Sean Conner, an analyst at Nuveen Asset Management in Minneapolis.“If a customer only needed a Chevrolet, Cisco would sell them a Porsche even if they didn’t need the extra speed,” said Conner, whose firm sold its Cisco stake in January after holding the shares for more than five years. “Now they can’t because HP and Juniper came in and said to consumers, ‘Why are you paying for all that extra stuff?”
Hewlett-Packard, world;s largest maker of PCs, is to sell more networking gear to capitalize on the growth of data centers - server installations larger than the power of the Internet. Juniper, meanwhile strengthened switch market in 2008, based on its routing activity.
Karen Tillman, a spokeswoman for San Jose, California-based Cisco, declined to comment.
Some networking rivals are willing to accept 40 percent gross margins on switches, while Cisco has typically seen 70 percent to 80 percent margins, Chambers said at the investor conference. Gross margin measures the percentage of sales remaining after deducting product costs.
Time to Choose?
“Cisco needs to choose between protecting share or preserving margins,” John Slack, an analyst at Citigroup Inc. in San Francisco, said yesterday in a note to clients. “It simply can’t do both.”
Chambers said in an April 4 memo to staff that he would make several “targeted moves” to restore lost credibility and sharpen the company’s focus. Shutting Flip, which Cisco bought for $590 million in 2009, isn’t enough to compensate for the declining profitability of its broader consumer business, said Alex Henderson, an analyst at New York-based Miller Tabak & Co. The company should exit that area entirely, he said.
“They’ve got a lot of work to do, and this is just a drop in the bucket,” Henderson said of the Flip decision.
The job cuts yesterday represent less than 1 percent of total employees and will take place by the end of the fiscal year, the company said. Cisco’s consumer division also includes Linksys home networking, and audio and media-storage products.
Cisco’s gross margin narrowed to 64 percent last fiscal year from 70 percent in 2003, in part a reflection of the push into consumer products and pressure from rivals on prices of its corporate products.
The slump has taken its toll on Cisco’s shares, which have declined 34 percent in the past year. That’s wiped out about $50 billion in market value. The stock fell 10 cents to $17.34 at 9:59 a.m. New York time in Nasdaq Stock Market trading.
Competition continues to mount. As Cisco was pushing into new areas, smaller companies such as Riverbed Technology Inc., F5 Networks Inc. and Aruba Networks Inc. have been able to gain an edge, according to Mizuho Securities USA Inc.
While these competitive pressures may have caught Cisco by surprise, they’re unlikely to keep the company down for long, said Rohit Mehra, an analyst at IDC in Framingham, Massachusetts.
“I don’t see a lot of these challenges as Herculean,” Mehra said. “We can call these small missteps. You will lose some market share when you’re the 800-pound gorilla.”
Cisco, which said yesterday it is cutting 550 jobs as part of closing the flip, turn affected the profits and market share. In a traditional network gear is the highest margin source of revenue, bringing its dominance in the industry. After the entry of new competitors use cheaper alternatives, Cisco is struggling to maintain its leadership position without a corresponding reduction in the prices of its competitors, " said Sean Conner, an analyst at Nuveen Asset Management in Minneapolis.“If a customer only needed a Chevrolet, Cisco would sell them a Porsche even if they didn’t need the extra speed,” said Conner, whose firm sold its Cisco stake in January after holding the shares for more than five years. “Now they can’t because HP and Juniper came in and said to consumers, ‘Why are you paying for all that extra stuff?”
Hewlett-Packard, world;s largest maker of PCs, is to sell more networking gear to capitalize on the growth of data centers - server installations larger than the power of the Internet. Juniper, meanwhile strengthened switch market in 2008, based on its routing activity.
Karen Tillman, a spokeswoman for San Jose, California-based Cisco, declined to comment.
‘Tough Market’
Chambers said last week that Cisco is looking hard at switching business, which has more than 80 percent market share overall. Cisco seeks ways to bring new products to profitability faster, " he said." The transition has been our challenge, " Chambers said last week Investors 'Conference ; in San Francisco, and recalling the International Business Machines Corp. ( IBM), Oracle Corp. (ORCL) and competitors Hewlett-Packard. "It will be a difficult market." Gears of sales increased by 12 percent to 13.6 billion U.S. dollars during the year ended in July, about a third of total revenues. Over the next six months over the year growth has slowed from 7.2 percent.
Some networking rivals are willing to accept 40 percent gross margins on switches, while Cisco has typically seen 70 percent to 80 percent margins, Chambers said at the investor conference. Gross margin measures the percentage of sales remaining after deducting product costs.
Time to Choose?
“Cisco needs to choose between protecting share or preserving margins,” John Slack, an analyst at Citigroup Inc. in San Francisco, said yesterday in a note to clients. “It simply can’t do both.”
Chambers said in an April 4 memo to staff that he would make several “targeted moves” to restore lost credibility and sharpen the company’s focus. Shutting Flip, which Cisco bought for $590 million in 2009, isn’t enough to compensate for the declining profitability of its broader consumer business, said Alex Henderson, an analyst at New York-based Miller Tabak & Co. The company should exit that area entirely, he said.
“They’ve got a lot of work to do, and this is just a drop in the bucket,” Henderson said of the Flip decision.
The job cuts yesterday represent less than 1 percent of total employees and will take place by the end of the fiscal year, the company said. Cisco’s consumer division also includes Linksys home networking, and audio and media-storage products.
Home Video
Cisco bought Flip to expand its expertise in home-video networking, a bid that never paid off. Flip posted about $325 million in revenue last year, less than 1 percent of total sales, Citigroup’s Slack said.Cisco’s gross margin narrowed to 64 percent last fiscal year from 70 percent in 2003, in part a reflection of the push into consumer products and pressure from rivals on prices of its corporate products.
The slump has taken its toll on Cisco’s shares, which have declined 34 percent in the past year. That’s wiped out about $50 billion in market value. The stock fell 10 cents to $17.34 at 9:59 a.m. New York time in Nasdaq Stock Market trading.
Competition continues to mount. As Cisco was pushing into new areas, smaller companies such as Riverbed Technology Inc., F5 Networks Inc. and Aruba Networks Inc. have been able to gain an edge, according to Mizuho Securities USA Inc.
While these competitive pressures may have caught Cisco by surprise, they’re unlikely to keep the company down for long, said Rohit Mehra, an analyst at IDC in Framingham, Massachusetts.
“I don’t see a lot of these challenges as Herculean,” Mehra said. “We can call these small missteps. You will lose some market share when you’re the 800-pound gorilla.”
0 comments:
Post a Comment