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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