Cisco Systems (CSCO), the world’s largest computer network equipment maker, reported a modest positive earnings surprise when it posted fiscal 3rd quarter earnings results after the bell today. The Dow component brought in 42 cents per share on revenues of $10.87 billion for the quarter.
Shares are trading up 4% in after-hours following the earnings report, following a penny drop on a down day for regular trading today. Many concerns investors have about Cisco’s direction are perhaps baked into the current share price; even with the bump after-hours, CSCO is trading around its lowest price since early 2009.
Much ink has been spilled on Cisco’s problems of late, including shrinking gross margins which have led to the company taking steps to sell off consumer products such as its Flip video business, which was discontinued in the quarter. Also, competition in the switches market have driven down Cisco’s premiums. This has resulted in gross margin compression, which fell again in the quarter to 61% (it was 64% in the year-ago quarter).
There was one less week in the 3Q of fiscal 2011 than in the year-ago quarter, which adds another positive glint to the earnings report. And while its products segment was down (as expected, with the Flip product getting the axe), services were up in the quarter. That said, net income is down $400 million year over year — was this all from an extra week in the quarter a year ago?
Minor positive earnings surprises are nothing new for Cisco. Over the previous 4 quarters, the average earnings beat was 5.86%. Analysts had been bringing down estimates slightly over the past month, but with a 35% sequential gain in EPS for fiscal 3Q, perhaps some upward revisions will be in the offing.
What Cisco plans to do regarding new products and its recent re-focus on its bread and butter of routing, switching and services will go a long way in determining Cisco’s future. But it may be awhile until it is clear how successful the company’s new strategy becomes.