Cisco meets market expectations in Q2

Profits of $2 billion on $8.75 billion turnover

Cisco Systems made US$1.4 billion (NZ$2 billion) in net income in its fiscal second quarter ended January 29, achieving earnings per share of US$0.21 on revenue of US$6.1 billion (NZ$8.75 billion), the networking equipment giant reported on Tuesday.

On a pro forma basis, excluding certain items, the company reported net income of $1.5 billion and earnings per share of $0.22, matching analysts' consensus expectations reported by Thomson First Call. Cisco's revenue for the quarter also was in line with analysts' expectations.

Revenue was up 12.3% from the year-earlier quarter and up 1.5% from the first quarter of the fiscal year, according to a company statement.

The $1.4 billion net income under GAAP (Generally Accepted Accounting Principles) was up from $724 million in the year-earlier quarter. Pro forma net income rose from $1.3 billion a year earlier. GAAP results exclude amortisation of intangible assets at $57 million, amortisation of deferred stock-based compensation at $39 million, an income tax effect, in-process research and development and payroll tax on stock option exercises.

For the first time in several quarters, the company saw strong momentum in its enterprise and commercial business in all regions of the world, president and chief executive officer John Chambers said in a conference call with press and analysts. One challenging area was sales to the federal government in the US, where orders were flat compared with a year earlier, he said.

Overall, product orders grew about 20% in Europe, the Middle East and Africa and in the Americas excluding the US. Product orders increased in the mid-teens in the US and in Japan, and were up in the mid-single digits in the Asia–Pacific region, Chambers said. The company saw especially strong growth in Europe, despite what Chambers called economic weakness in Germany and France. Growth was strong in the UK, Eastern and Southern Europe, North Africa, the Middle East and Russia, he said. Product bookings in India rose about 60% year-over-year, while China was a more challenging market for Cisco, he said.

Chambers touted the success of Cisco's advanced technologies, which are relatively recent additions to its lineup that include security, storage, home networking, VoIP, optical networking and wireless networking. They saw revenue growth of between 35% and 70%, he said. Revenue from security technologies, which are being integrated into a variety of Cisco products, grew more than 30% from the year-earlier quarter.

The integration of advanced technologies across Cisco's product line is at the centre of the company's strategy for staying ahead of competitors, especially low-cost Asian manufacturers, Chambers told analysts. The concept of buying an integrated network instead of point products from different vendors has reached a "tipping point" and Cisco is poised to beat new competitors who generally are focused on one type of product, he said.

Chambers pointed to the example of Cisco's Integrated Services Router, which is made for small and medium-size businesses and can be equipped with VoIP, security and other features. That product line, introduced in September, has had the fastest new-product sales growth in Cisco's history, he said.

VoIP phones are another strong point, almost doubling in sales from last year's second quarter to pass 570,000 phones shipped in the quarter.

For the third quarter, Cisco predicted revenue will be flat or up as much as 2% from the second quarter. The company expects year-over-year revenue growth of between 8% and 10%, Chambers said.

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