Cisco Systems chairman and CEO John Chambers reiterated that the company is not abandoning its set-top box business -- noting the former Scientific Atlanta group boosted sales 11% in the last 12 months -- though he said the market is shifting to open standards and IP-based devices.
"In terms of set-top boxes, we are very much committed in this marketplace," Chambers said on Cisco's fourth-quarter earnings call Wednesday. "You will see us move, however, from traditional set-top boxes to IP set-top boxes to Videoscape."
Videoscape is Cisco's umbrella brand for an array of IP-based video hardware and software, including IPTV set-tops. "Receptivity, so far, has been very, very good in terms of that direction," Chambers said. "It's a market that we think plays right into our sweet spot, and we're doing it with open standards."
Last month, Cisco said it will sell its set-top manufacturing facility in Juarez, Mexico, to Foxconn Technology Group. That triggered speculation that Cisco was intending to exit the business altogether. Cisco acquired the plant with the Scientific Atlanta deal, which was completed in February 2006.
Including 5,000 set-top plant employees expected to transfer to Foxconn, Cisco is eliminating 11,500 jobs, representing 9% of its workforce.
The Scientific Atlanta group grew orders about 10% and revenue by 11% for the fiscal year ended July 30, 2011, Chambers said.
Effective Aug. 1, Cisco reorganized the former SA business unit, consolidating it with the company's enterprise video products under Marthin De Beer, senior vice president of the company's Emerging Business Group. That change led to the departure of Enrique Rodriguez, who ran the Service Provider Video Technology Group as senior vice president and general manager for a little more than a year.
Total service provider sales in the fourth quarter were very strong, Chambers said on the call, with growth in almost all major geographies. Cisco's service provider orders increased 19% year over year and U.S. orders were up 15%. In particular, Chambers called out routing products, with 65% growth in the CRS core router family and 156% increase in orders for the ASR 9000 metro Ethernet routing platform.
Overall, Cisco posted fourth quarter net sales of $11.2 billion, beating Wall Street estimates of $10.98 billion. Net income for the period plummeted 36%, to $1.2 billion (or $0.22 per share), versus analyst expectations of $0.38 per share. According to the company, net income for the fourth quarter and fiscal year 2011 included pretax charges of $772 million and $923 million, respectively, related to restructuring and other charges.
Jefferies & Co. analyst George Notter wrote in a note Thursday that "We feel incrementally better about the progress Cisco is making on the restructuring" but said "we were hoping for a more emphatic statement about what tangential businesses Cisco were to rationalize away."
The company will reduce its investments in businesses such as set-tops, WebEx and Umi teleconferencing, Notter wrote. "While we think the company could be more aggressive here, we recognize that this step should help refocus the company to some degree on its core businesses," he said.