Cisco Systems Inc, the largest maker of equipment to link computers, said it had a fiscal first-quarter loss of US$268 million. Revenue exceeded forecasts, sending the company's shares up 5 percent.
The loss, including an investment writedown, was US$0.04 a share, compared with year-earlier net income of US$798 million, or US$0.11, Cisco said. Sales in the period ended Oct. 27 fell 32 percent to US$4.45 billion as customer demand dropped. The company said revenue may rise this quarter from the previous one.
Slumping economies worldwide and an unprecedented collapse in telecommunications-equipment spending this year humbled Cisco and its once-surging shares. The company is slowly rebounding, Chief Executive John Chambers said, as customers reduce orders from rivals and Cisco cuts expenses by almost US$2 billion annually, more than an earlier target of US$1 billion.
"We were obviously pleased with the majority of issues being in a positive direction for the first time this year," Chambers said on a conference call. "We've focused our short-term goal on what we can control."
Revenue in the period ending Jan. 26 will be unchanged to "up slightly," by a "very low single-digit" percentage, from the first quarter, Chief Financial Officer Larry Carter said on the conference call. He and Chambers declined to offer a specific forecast beyond the fiscal second quarter.
Cisco shares rose US$0.64 to US$17.90 on the NASDAQ stock market and climbed to US$18.90 in after-hours trading following the report. They have dropped 53 percent this year, on pace for their second straight annual decline. They had gained in each of the first 10 years after the San Jose, California-based company sold shares to the public.
In Hong Kong, Cisco's shares rose as much as 5 percent to HK$143.50 before reversing course and sliding 0.4 percent to HK$136 where they most recently traded.
Excluding acquisition costs, an inventory gain and an US$858 million writedown in the value of investments, profit would have been US$332 million, or US$0.04 a share, compared with US$1.36 billion, or US$0.18, a year earlier.
On that basis, which doesn't conform to generally accepted accounting principles, analysts had forecast profit of US$0.02 a share on revenue of US$4.19 billion, according to a poll by Thomson Financial/First Call.
Revenue rose 3.5 percent from the previous quarter's US$4.3 billion after Chambers said in August that it would be unchanged to down 5 percent from that figure. It was the first gain after two quarters of sequential declines.
"It's a solid quarter, and I don't see how anybody can poke any holes in it," said Shawn Campbell, telecommunications-equipment analyst at Northern Trust Corp, which held 54.6 million Cisco shares as of June. "Chambers is saying the right things."
Wall Street analysts probably will boost profit estimates for the fiscal year ending July of next year, said Steve Mygrant, a fund manager at Fifth Third Bancorp, which held 5.42 million Cisco shares as of June 30. Mygrant raised his target for profit, excluding certain items, to US$0.21 a share from US$0.16. Analysts polled by First Call, on average, had forecast US$0.15 a share.
"They are gaining a little bit more confidence in their visibility," Mygrant said of Cisco's management. Product revenue fell 38 percent to US$3.66 billion, while services revenue increased 30 percent to US$792 million. Cash and investments rose to US$19.1 billion from US$18.5 billion three months earlier. Cisco spent US$350 million during the quarter to buy back its shares, Carter said.
Chambers estimated that the Sept. 11 terrorist attacks that destroyed the World Trade Center and part of the Pentagon have reduced business about 5 percent since then. Orders for replacement gear totaled less than US$100 million, he said.
Outside the US, the company is benefiting from rising orders in Japan and in other North American and South American countries except Brazil, he said.
Campbell said he believes that Chambers may be underestimating second-quarter sales as he did three months earlier for first-quarter revenue.
"It looks and feels like a bottom" for Cisco's revenue, he said. "It looks like we've gotten there."
Chambers, while not mentioning the name of rival Juniper Networks Inc, said the company gained a "modest" amount of market share last quarter in sales of high-speed routers to direct Internet traffic.
"They gained market share across the board," Fifth Third's Mygrant said. "We think the competitive position is strengthening." Chambers noted a milestone for one of Cisco's newer products: The company has sold 500,000 of its desktop telephones that operate over an office's computer network rather than the traditional telephone network.
Cisco excluded various pretax items from so-called pro-forma results that it touts to investors: US$233 million in acquisition-related costs to write off research projects, stock compensation and intangible assets; a US$290 million gain from using inventory that the company earlier had deemed worthless; and a US$858 million investment loss.
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