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Cisco Beats Estimates as Price Cuts Lure More Customers

Cisco Systems Inc. has eliminated 7,800 jobs since last year and is shutting down businesses to reduce expenses and simplify decision-making. Photographer: David Paul Morris/Bloomberg
Cisco Systems Inc. has eliminated 7,800 jobs since last year and is shutting down businesses to reduce expenses and simplify decision-making. Photographer: David Paul Morris/Bloomberg

Aug. 16 (Bloomberg) -- Cisco Systems Inc., the biggest maker of computer-networking equipment, reported quarterly profit and sales that topped analysts’ estimates as job cuts kept costs in check and price reductions attracted customers.

Profit excluding some costs was 47 cents a share in the period ended July 28, Cisco said in a statement yesterday. That compares with the average estimate of 46 cents, according to data compiled by Bloomberg. Revenue rose 4.4 percent to $11.7 billion, compared with analysts’ prediction for $11.6 billion.

Chief Executive Officer John Chambers has cut 7,800 jobs, shut businesses and reduced prices to win business lost to Juniper Networks Inc. and Hewlett-Packard Co. and combat a slowdown in Europe, which makes up a fifth of sales. Shares were buoyed after the company boosted its dividend by 75 percent and forecast sales and profit that met expectations.

“Their growth is modest, so it’s not clear when they can start accelerating some of the top-line growth,” said Erik Suppiger, an analyst with JMP Securities LLC in San Francisco. “But they’re effectively keeping their profitability intact and taking some steps to return earnings back to shareholders.”

Cisco rose 9.6 percent to $19.02 at the close in New York. The stock is up 5.2 percent this year.

Since new business generates 80 percent of quarterly sales, Cisco is seen as a bellwether for the broader technology industry. Net income rose 56 percent to $1.92 billion, or 36 cents a share, from $1.23 billion, or 22 cents, a year earlier.

Dividend Boost

The San Jose, California-based company is increasing its dividend to 14 cents a share, starting this quarter, from 8 cents a share. Chief Financial Officer Frank Calderoni said yesterday Cisco would return at least half of cash generated from operations via dividends and share buybacks.

“Our financial strength gives us the confidence to commit and execute against this strategy, in order to provide meaningful return to our shareholders,” he said in a statement.

Cisco, a beneficiary of the growth in data that needs to be shuttled between servers, mobile phones, search engines and video websites, forecast sales and profit in line with estimates.

Including last month’s acquisition of NDS Group Ltd., which makes software that powers cable set-top boxes and delivers video, Cisco forecast profit of 45 cents to 47 cents a share in the current quarter, compared with the average estimate of 46 cents. Sales will rise 4 percent to 6 percent from a year earlier, which translates to a range of $11.6 billion to $11.9 billion. Analysts predicted $11.7 billion.

Europe Weak

While Cisco’s efforts have helped reverse share losses in some markets, demand for networking equipment has been weak in Europe, India and from government agencies, Chambers said on a conference call with analysts yesterday.

“Europe’s going to get worse before it gets better, and federal government spending is not going to improve in the short term here in the U.S.,” he said.

Orders from Europe, the Middle East and Africa fell 6 percent over last year, the only geographic region to experience a decline. Switching revenue was flat in the fourth quarter at $3.61 billion while routing revenue grew 4 percent to $2.1 billion.

The job cuts kept costs in check, contributing to a 3.8 percent drop in operating expenses in the just-ended fiscal year, while price reductions attracted customers. Orders from the Americas rose 4 percent and from Asia rose 12 percent.

“Cisco is doing all they can to control what they can control,” said Joanna Makris, an analyst with Mizuho Securities USA Inc. The results released yesterday suggest demand for networking gear “is not that bad.”

To contact the reporter on this story: Jordan Robertson in San Francisco at jrobertson40@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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