Business News

Cisco results beat view, shares jump

SOURCE:

Reuters

2008-08-05 19:34:50

Cisco results beat view, shares jump

NEW YORK (Reuters) –

Cisco Systems Inc (CSCO.O) posted

stronger-than-expected quarterly results and said it expected

the weak economic environment to be relatively short term,

sending its shares up 7 percent after the market closed on

Tuesday.

Investors took heart from Chief Executive John Chambers’

comment that he had “very strong” confidence in Cisco’s long-

term revenue growth target of 12 percent to 17 percent, even

though the company’s quarterly forecasts were a little light

compared with average analyst estimates.

“Despite concerns of deterioration in its core market,

Cisco reiterated its long term growth guidance, giving jittery

investors some comfort,” said Mark Sue, an analyst at RBC

Capital Markets. “A lot of people were worried that the number

would have to come down.”

Cisco, which sells routers and switches that direct Web

traffic, has benefited as global phone companies and large

corporations upgrade their networks to meet growing Internet

use, but investors have been worried that a weaker economy

could weigh on technology spending.

Its profit for the fiscal fourth quarter ended July 26 rose

to $2.0 billion, or 33 cents a share, from $1.9 billion, or 31

cents a share, in the year-ago quarter. Earnings excluding

items was 40 cents per share, exceeding the average analyst

forecast by a penny, according to Reuters Estimates.

Quarterly revenue rose 9.9 percent to $10.4 billion,

surpassing $10 billion for the first time. Analysts on average

had expected revenue of $10.3 billion.

Analysts said they were particularly happy with Cisco’s

announcement that its book to bill ratio was “comfortably over”

1, indicating a healthy balance of demand to supply.

While the veteran technology executive avoided giving a

full-year outlook for the fiscal year that just began, only

giving an outlook for the first two quarters which were

slightly below estimates, analysts said they were happy with

what they got.

Cisco forecast revenue growth of 8 percent in the first

quarter and 8.5 percent in the second quarter. Wall Street on

average was looking for first quarter revenue growth of 8.8

percent and second quarter of 9.5 percent.

“It might have been worse than that,” said Jefferies

analyst Bill Choi. “If anything, it gives people confidence

that off this low Q1 number they are anticipating a sequential

rise.”

Chambers also said he saw mixed signals in the economy,

stock market and energy costs, but that the challenges would be

relatively short term.

“While it is very difficult to predict when we may see a

stronger spending environment by our customers and return to

our 12 percent to 17 percent long-term growth objectives, our

best estimate… is that the current economic challenges remain

with us for the next few quarters,” he said.

While those comments may have seemed extremely cautious a

few quarters ago, analysts said Wall Street had already

factored in a few more quarters of weak business activity.

Chambers spooked the market last month when he told Reuters

that more customers saw an economic recovery early next year

rather than this year and similar comments elicited little

reaction on Tuesday.

Analysts said they also were encouraged by Chambers’

remarks that its U.S. enterprise business was showing

improvement.

Cisco shares were up 7 percent at $24.24 in extended

trading, after gaining 3 percent in Nasdaq trading to close at

$22.65.

As of Tuesday’s close, the shares had fallen over 20

percent from a year earlier. RBC Capital Markets has a 12-month

price target of $27 while Jefferies targets $30.

Chambers said Cisco will always be affected by economic

changes, but that it will manage to grow in the long term,

regardless.

“During each economic slowdown, Cisco has always navigated

through them very effectively gained wallet share and in my

opinion market share,” he said.

Analysts have also said Cisco was relatively resistant to

economic downturns because it has broadened its customer base,

as well as its product line and geographic reach.

While it is best known for selling routers and switches, it

has expanded into software and new technologies such as video

conferencing.

It said on Tuesday that orders from emerging markets

excluding Asia grew around 10 percent in the July quarter,

whereas orders in the United States and Canada grew 7 percent.

European orders grew 11 percent.

(Additional reporting by Sinead Carew; Editing by Andre

Grenon and Carol Bishopric)

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Blake Masterson

Freelance Writer, Journalist and Father of 5

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