By Danielle Kucera - Nov 10, 2011 5:19 AM GMT+0700
Cisco Systems Inc. (CSCO), the world’s biggest maker of networking equipment, reported profit and sales that exceeded analysts’ estimates, bolstered by a turnaround effort and demand for data centers.
Excluding some costs, earnings were 43 cents a share in the fiscal first quarter, which ended Oct. 29, the company said today in a statement. Analysts on average had predicted 39 cents, according to Bloomberg data. Cisco also topped projections with its second-quarter forecast.
Chief Executive Officer John Chambers is eliminating jobs, scaling back operating expenses and revamping a management structure that slowed decision making. The company also is refocusing on its main products: network switches and routers. The moves are aimed at shoring up gross margin, a yardstick of profitability, which narrowed to 61.4 percent in fiscal 2011 from 65.8 percent five years ago.
“It’s a far cry from the growth rates for prior years, but this is right in line with the new Cisco,” said Colin Gillis, an analyst at BGC Partners LP in New York. “They’re controlling their expenses.”
Cisco rose 64 cents to $18.25 in late trading after the report. The stock had fallen 70 cents, or 3.8 percent, to $17.61 at the close today in New York. Shares of the San Jose, California-based company have dropped 13 percent this year.
Revenue Forecast
Sales will grow 7 percent to 8 percent in the current quarter, the company said on a conference call. That equates to $11.14 billion to $11.24 billion, beating the $11.13 billion predicted by analysts. Earnings will be 42 cents to 44 cents a share, excluding some costs. The average estimate was 42 cents.
First-quarter net income fell to $1.78 billion, or 33 cents a share, from $1.93 billion, or 34 cents, a year earlier. Sales rose 4.7 percent to $11.3 billion in the period, compared with an estimate of $11 billion. While Cisco’s gross margin narrowed to 62.4 percent last quarter, excluding some costs, that beat the average estimate of 61.3 percent.
The company also is benefiting from demand for so-called cloud services. That’s fueling growth in its data-center switching segment, where Cisco has 80 percent market share, said Brian Modoff, an analyst at Deutsche Bank Securities Inc. in San Francisco. Data centers provide access to software and computing power remotely over the Internet, rather than through companies’ local systems.
Cisco is backtracking on some of its consumer efforts as well. The company announced in April that it would close the Flip video-camera business, eliminating 550 jobs. In July, Cisco unveiled a plan to cut about 6,500 employees worldwide and transfer an additional 5,000.
Cisco has “cut back on some bureaucracies and made the company run better,” said Matthew Robison, an analyst at Memphis, Tennessee-based Wunderlich Securities Inc. “That’s a benefit. It’s not just cutting heads, but changing the way the organization operates that I think is compelling.”
To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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