Fri, Feb 10, 2012 - Page 10 News List

Cisco confident of strong Q3 after Q2 beat estimates

Reuters

Network equipment maker Cisco Systems Inc’s restructuring is paying off, allowing the company to promise further revenue growth and hike its quarterly dividend after its second quarter results beat estimates.

It was almost a year ago that Cisco chief executive John Chambers acknowledged the company had lost its way after disappointing investors for several quarters with bleak outlooks and profit warnings.

However, Chambers, who has led the company for 17 years, finally scaled back on consumer businesses and laid off thousands in a sweeping overhaul, aiming to cut expenses by US$1 billion.

“We achieved our goal of US$1 billion expense reductions measured from a quarterly run rate perspective in the second quarter, one quarter earlier than our stated goals,” Chambers said on a call with analysts on Wednesday.

Cisco — a sector bellwether because of its global scale and diverse client base — now forecasts 5 percent to 7 percent growth in fiscal third-quarter revenue, unlike its rivals that expected no growth.

That translates into a sales outlook of US$11.4 billion to US$11.6 billion, matching or slightly exceeding Wall Street’s average forecast of US$11.46 billion.

Executives also forecast gross margins of 61.5 percent to 62 percent in the fiscal third quarter ending April.

“We are coming in the sweet spot,” Chambers said.

“It doesn’t matter if you’re talking to Time Warner or Verizon, AT&T, Sprint, Deutsche Telekom, British Telecom, Telefonica, China mobile, Telstra, all of which we had in the last month at multiple levels,” he added.

Cisco’s business grew in all of its customer segments in its second quarter with the exception of the public sector, which was down 1 percent. Chambers said he expected the public sector to remain tough.

Second-quarter revenue rose 10.6 percent from the year-ago period to US$11.5 billion. Analysts on average were expecting US$11.23 billion.

Net income grew to US$2.2 billion, or US$0.40 per share, from US$1.5 billion, or US$0.27 per share, a year earlier.

Excluding items, earnings were US$0.47 per share, beating the average estimate of US$0.43 a share, as compiled by Thomson Reuters I/B/E/S.

Cisco said on Wednesday it plans to pay a quarterly dividend of US$0.08 per common share, up US$0.02 from the previous quarter.

Chambers also promised to get back on the acquisition path this year.

“Over the last year, we curtailed our M&A activity to a large extent as we worked hard to refocus … We expect to be more active with acquisitions in the quarters and years to come,” he said.

He added that Cisco had built up a cash balance because it was easy to buy a small company with cash.

“In terms of our size, we believe you partner big to big. You acquire big to small. That’s how we approach the market in terms of direction,” Chambers said.

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