News

Sales Fall At Cisco, Motorola

2/07/2009 2:00 AM Eastern

The cable industry’s two biggest technology suppliers, Cisco Systems and Motorola, last week posted quarterly declines in service-provider revenue, although both cited video-related equipment sales as a bright spot.

Cisco’s service-provider revenue worldwide dropped 20% for its fiscal second quarter, which ended Jan. 24 — and fell about 30% in the United States — as cable and telecom customers cut spending.

Cisco CEO John Chambers, on the company’s earnings call, said its biggest U.S. service-provider customers, which include Comcast, Time Warner Cable, Verizon Communications and AT&T, slowed their spending for the quarter.

“They kind of took the foot off the gas pedal for a period of time,” Chambers said. “Didn’t hit the brakes, but [they] sure as heck weren’t accelerating.”

At the same time, Cisco’s video-systems revenue grew 18% and it became the company’s largest advanced technology in terms of quarterly revenue, according to Chambers.

Compared with enterprise and consumer segments, “service-provider budgets are the ones probably over the long run I am most comfortable with, because those networks are going to load up videos,” he said. “We are getting closer to the service-provider customers and they are looking at new revenue opportunities and how we help them monetize the loads that are occurring on that and I think we are positioned very well.”

Overall, Cisco reported net sales of $9.1 billion (down 7.5% year over year) and net income of $1.5 billion (down 27%) for the quarter. The company does not report financial results by business segment.

Chambers also said on the call that the company may cut 1,500 to 2,000 jobs this year, or between 2.2% and 3.0% of its workforce, as part of ongoing cost-reduction efforts. At the end of the quarter, Cisco’s headcount was 67,318.

For its part, Motorola’s cable and telecom business unit saw sales fall off 5% for the quarter ended Dec. 31, to $2.6 billion compared with $2.7 billion in the year-ago quarter. Operating earnings for the unit increased to $257 million, compared with operating earnings of $192 million in the year-ago quarter.

Digital set-top sales were strong, however. In the cable-focused Home business, fourth-quarter sales were approximately $1.2 billion, up 11% year-over-year, with Motorola shipping 4.7 million digital-entertainment devices in the quarter, compared with 3.4 million in the year-ago quarter, on strong demand for HD, HD DVR and IPTV set-tops. For the full year, Home grew sales 16%, shipping 18 million set-tops compared with 15 million in 2007.

The anchor sinking Motorola continued to be the mobile-devices business, which reported a 51% decline in fourth-quarter sales, leading to a $3.6 billion net loss for the period.

“Obviously, we have a whole portfolio of businesses here and Home and Networks Mobility and Enterprise Mobility continue to generate cash, [while] Mobile Devices continues to burn it,” Greg Brown, Motorola co-CEO and chief executive of the first two units, said on the company’s earnings call.

Brown said the longer-term fundamentals of the cable business unit are “solid,” with continued demand expected for high-definition TV, personalized video services and higher-speed broadband. But for 2009, “overall industry visibility remains limited, with uncertainty in the economy a major factor,” and he said Motorola expects some pullback in total industry capital spending.

Last month, Motorola warned it would miss expectations on fourth-quarter 2008 sales, and said it would lay off an additional 4,000 employees this year in addition to previously announced cuts.

Motorola’s sales for 2008 were $30.1 billion, down 18% from $36.6 billion in 2007, and its net loss was $4.2 billion, compared with a net loss of $49 million the previous year.

For the first quarter, Motorola has projected a loss of $0.10 to $0.12 per share, which excludes charges associated with layoffs and other operating-expense reduction initiatives.

Motorola last week announced that Ed Fitzpatrick, senior vice president and corporate controller, has been named acting chief financial officer effective immediately, replacing former CFO Paul Liska.

Fitzpatrick previously was corporate vice president of finance for the cable-focused Home & Networks Mobility business and has been controller for the company’s Networks & Enterprise and the Government & Enterprise Mobility Solutions businesses. Before joining Motorola, he was a senior manager at Price Waterhouse.

September