Code:
High | Mean | Low
CSCO Estimates: 0.39 | 0.378 | 0.37
Cisco meets targets, but warns on outlook
Revenue forecast below expectations after order slowdown in January
SAN FRANCISCO (MarketWatch) -- Cisco Systems Inc. managed to grow its earnings by 11% in the January quarter thanks to solid sales growth, but the company's shares took a hit in after-hours trading after the networking giant issued a disappointing forecast for the current period.
The results are likely to give further rise to fears that an economic slowdown could hit the high-tech sector, which led many other industries in earnings growth last year.
This time around, Chambers tried to sound a more optimistic note, saying he expects the slowdown will likely last "a few months," at least among corporate customers buying high-tech gear.
"I'm personally very optimistic that this market transition provides opportunities for us and will be relatively short-term in is implications," Chambers said on the call, adding that the company planned to use the slowdown as an opportunity "to be aggressive about moving into new market adjacencies," implying a potential upswing in acquisition activity.
However, a sharp slowdown in orders during the month of January led the company to issue a cautious outlook for the current quarter, which ends in April.
Chambers said he expects revenue for the April quarter to grow 10% from the previous year. That equates to revenue of about $9.8 billion, lower than the $10.19 billion expected by analysts for the period, according to Thomson Financial.
Shares of Cisco fell more than 8% in after-hours trading Wednesday following the report. The stock peaked above the $34 mark in early November before the last earnings report.
The company's legacy switching unit remains its largest business, with revenue totaling $3.3 billion, or about 34% of the quarter's total. Revenue from the Advanced Technology unit - which includes businesses that range from cable-TV set-top boxes to video conferencing products - totaled $2.4 billion, or 25% of the total while revenue from the Router business came in at just under $2 billion.
Street surprised by forecast
Leading up to the report, several analysts predicted that Cisco would adopt a cautious outlook for the quarter, given the current environment.
However, the guidance surprised even those who were already cool towards the stock.
"We were cautious going into the call, but they even surprised us," said Sam Wilson of JMP Securities, who currently has a neutral rating on Cisco's shares. "It's about $450 million they're taking out of the quarter. We knew January was weak; we didn't think it was that weak."
Wilson added that he believes Chambers is being too optimistic in expecting the current slowdown to be short-term in nature.
"We believe that we are at the front of a slowdown," he said.
Shaw Wu of American Technology Research, who rates Cisco as a buy, took a more bullish view, saying that Chambers was right to "reset the bar." But he conceded that the company's forecast was worse than many hoped for.
"I think investors were expecting some sort of guide down, but I think this was lower than expected," he said.
From Cisco press release: - Q2 Net Sales: $9.8 billion (increase of 16.5% year over year)
- Q2 Net Income: $2.1 billion GAAP; $2.4 billion non-GAAP
- Q2 Earnings per Share: $0.33 GAAP (increase of 6% year over year); $0.38 non-GAAP (increase of 15% year over year)
SAN JOSE, Calif. - February 6, 2008 - Cisco®, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 26, 2008. Cisco reported second quarter net sales of $9.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.1 billion or $0.33 per share, and non-GAAP net income of $2.4 billion or $0.38 per share.
"Cisco delivered another solid quarter with strong revenue and order growth driven by a broad base of geographies, products, services and customer markets," said John Chambers, chairman and CEO, Cisco. "Cisco's ability to understand market transitions, whether technology or business model-based, continues to be a key contributing factor to our long-term success."
Chambers continued, "As we enter the second half of the fiscal year, our innovation pipeline is in excellent shape, our balanced product momentum across core and advanced technologies continues to be solid, and execution against our long-term strategy remains unwavering. This constant evolution of moving into new markets and product adjacencies, alongside our core operational and financial strength, is the hallmark of Cisco's ability to act upon key market transitions."
"We are pleased with Cisco's solid financial performance and strong top-line growth during the quarter," said Dennis Powell, chief financial officer, Cisco. "We believe our solid financials, strong balance sheet and continuing investment in a diversified technology portfolio across new and adjacent markets will maintain our ability to drive long-term shareholder value."
Business Highlights
Acquisitions and Investments
- Cisco completed the acquisition of Navini Networks, Inc., a provider in the mobile WiMAX broadband wireless industry. Navini has developed an innovative WiMAX solution that provides compelling value propositions for service providers, designed to enable the delivery of last-mile wireless broadband access to consumers and businesses worldwide.
- Cisco completed the acquisition of Securent Inc., a leading provider of policy management software for enterprises.
- Cisco plans to invest up to $1.59 billion (AED 5.8 billion) on information and communications technology in the United Arab Emirates (UAE) over the next five years, in support of the 2015 vision of His Highness Sheikh Mohammad Bin Rashid Al Maktoum to fuel the nation's growth and development.
New Products
- Cisco introduced new capabilities for WebEx® MeetMeNow, adding personal video conferencing capabilities and one-click Web meetings from within the Microsoft Office productivity suite.
- Cisco introduced the Internet Protocol (IP) Services Gateway (Model DRG2800), designed to expand consumers' entertainment and personal content choices and bring network-based and home-based applications together in one device.
- Cisco introduced the Cisco ASA 5580 Adaptive Security Appliance, designed to deliver data center-class performance with firewall and SSL/IPsec VPN capabilities in a single platform.
- Cisco introduced and demonstrated intercompany capabilities for Cisco TelePresence with BT. This will provide businesses with the flexibility and security to have "in person" meetings with customers, partners and suppliers with the ease of a simple phone call.
- Linksys® announced the Wireless-G Business Internet Video Camera with Audio (WVC2300), a surveillance product offering many features in a standard camera design, for small-business owners and the channels that cater to them.
- Cisco announced a suite of new solutions for the small and medium-sized business (SMB), including technical services, the tripling of unified communications capabilities up to 48 users, and the addition of four new Ethernet switches. Cisco also announced that its SMB channel initiative, Select Certification, has grown to nearly 1,000 channel partners worldwide.
- Cisco announced the Cisco Managed Services Channel Program, designed to extend and accelerate the global development and delivery of innovative managed services based on advanced networking technologies as well as IP Next-Generation Networks. The program will help allow regional channel partners, service providers and systems integrators to more easily meet our customers' demand for managed services in established and emerging markets.
Major Customer Announcements
- AT&T deployed the Cisco CRS-1 Carrier Routing System to support advanced residential and business services.
- TELUS became the first Canadian telecommunications provider to deploy and support Cisco TelePresence.
Key Milestones
- Cisco reached the milestone of 100 Cisco TelePresence customers, deploying units in over 40 countries.
- In conjunction with the Central European University Business School, the Cisco Entrepreneur Institute opened in Hungary to build entrepreneurial capacity by teaching the skills needed for running a small or medium-sized business successfully.
- Cisco and IBM announced an agreement under which they plan to transform the retail banking experience by enhancing customer interaction and collaboration across all types of delivery channels. New, modular solutions integrate front- and back-office systems with collaboration technologies such as voice over IP (VoIP), streaming video, Web conferencing, and instant messaging.
- Cisco was named as a global strategic technology provider for the Middle East and North Africa (MENA) region's newly launched youth employment initiative - 'Silatech' - to support the creation of new jobs needed in the Middle East and North Africa region.
