Cisco Declines After Forecast Misses Some Estimates

John Chambers, chairman of Cisco Systems
John Chambers, chairman of Cisco Systems, attends a panel discussion during the 2010 World Economic Forum. Photographer: Chris Ratcliffe/Bloomberg

Cisco Systems Inc., the biggest maker of networking equipment, declined 4.5 percent in Nasdaq trading after its sales forecast failed to live up to investors’ optimism for the technology recovery.

Chief Executive Officer John Chambers forecast sales of at least $10.7 billion in the current period, following record revenue last quarter. While that beat the $10.6 billion average prediction of analysts surveyed by Bloomberg, estimates ranged as high as $11 billion.

“Expectations had gotten a little ahead of themselves,” said Erik Suppiger, an analyst at Signal Hill Capital Group LLC in San Francisco. He advises investors to buy the shares, which he doesn’t own.

Cisco, the world’s biggest provider of networking equipment, followed fellow technology bellwethers Google Inc. and Microsoft Corp. in exceeding most projections and yet coming up short in investors’ eyes. The stock had climbed 43 percent in the past year, fueled by signs that corporate spending would soar again after the recession.

Cisco declined $1.21 to $25.53 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have advanced 6.6 percent this year.

Third-quarter net income climbed 63 percent to $2.19 billion, or 37 cents a share, from $1.35 billion, or 23 cents, a year earlier, San Jose, California-based Cisco said. Excluding costs such as stock compensation, profit was 42 cents. Analysts in a Bloomberg survey had estimated 39 cents.

Record Revenue

Sales rose 27 percent to a record $10.4 billion in the third quarter, which ended May 1. Analysts had predicted $10.2 billion.

Revenue this quarter will increase 25 percent to 28 percent from a year earlier, Chambers said on a conference call. Because the period typically generates the biggest sales of the year, investors wanted to see more of a jump from the third quarter, said John Marchetti, an analyst with Cowen & Co. in New York.

“Some folks are looking at the forecast as below normal seasonality,” Marchetti said. He has an “outperform” rating on the shares, which he doesn’t own. “Chambers is trying to temper optimism and bullishness.”

Even so, Cisco is benefiting from corporate customers stepping up technology spending as they grapple with a flood of information and bandwidth-consuming video. Companies also are retooling networks to handle cloud computing -- the delivery of programs, data and computing power via the Internet.

Tandberg Deal

Chambers, 60, is acquiring video technologies in an effort to spur demand for even more networking gear. The company completed a $3.2 billion purchase of Tandberg ASA last month, adding lower-cost videoconferencing products. Last year, Cisco bought Pure Digital Technologies Inc., the maker of the Flip video camera.

Cisco also is squeezing prices as it fights off rivals Hewlett-Packard Co. and Juniper Networks Inc. That took the form of discounts and rebates last quarter, Chief Financial Officer Frank Calderoni said on the call.

The price breaks are a sign that Cisco faces mounting competition, said Catharine Trebnick, an analyst with Avian Securities Inc. in Boston.

“I was amazed they actually acknowledged they had discounted some products due to competitive pressures,” she said. “As much as they were a growth engine, the competitive threat is there.”


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