Cisco hits record quarterly revenue

Cautious outlook, however, pushes shares down in after-market trading

Crediting a strategy that exploits users' move to cloud computing, Cisco Systems on Thursday reported record net sales of US$11.6 billion for the quarter ending April 28, up 6.6 percent from the year-earlier period.

It was the second quarter in a row of record quarterly revenue. Net income was $2.2 billion, or $0.40 per share, up from $1.81 billion in the same quarter last year.

Facing economic uncertainty, Cisco officials have pledged to streamline costs in an effort to improve margins, so that profit will increase faster than sales.

"We are successfully executing against our long-term strategic plan of growing profit faster than revenue, and in a cautious IT spending environment, we continue to outperform our competitors," said John Chambers, Cisco chairman and CEO, in the company's earnings release.

"In a world of clouds, video and mobile device proliferations, the role of the intelligent network has never been greater and our value proposition with our customers is the strongest it has ever been," Chambers said.

Chambers said in a conference call after the release that Cisco's products are either number one or two in their respective market segments. The company's Unified Computing and Services segment grew more than 50 percent year-over-year, Chambers noted, stressing that competitor's services business stayed flat for the most part.

Services revenue was $2.5 billion for the quarter, up 13 percent year-over-year.

Analysts have been upbeat on Cisco recently. Last quarter the company hit its $1 billion target for its expense-reduction plan, which originally was not set to be attained until the next quarter.

Revenue edged out the $11.57 billion forecast by analysts surveyed by Thomson Reuters. Excluding certain one-time charges, earnings per share of $0.48 were slightly higher than analysts' forecast for EPS of $0.47. In after-market trading immediately after the results were released, Cisco shares ticked up by $0.07 to $18.78.

However the economy, especially in Europe, cast shadows on Cisco's results as well as its outlook for the rest of the year. Sales for the videoconferencing business, for example, were flat year over year as the economy put a squeeze on corporations and the public sector, noted Chambers.

Company officials forecast revenue growth of 2 percent to 5 percent in the current quarter, which would amount to about $11.4 billion to almost $11.8 billion, lagging behind analyst estimates of $11.99 billion.

Cisco also estimated EPS of $0.44 to $0.46, excluding one-time items, for the current quarter, short of analysts' forecast of $0.49.

On the conference call, Chambers said that Cisco, because its products are "pervasive" throughout corporations worldwide, typically has a better read on trends than many other technology companies. He said, however, that it was "really hard to read" what the second half of the year would look like. While most users have told him that IT budgets were set to rise in the rest of the year, "in the very next sentence they said we are waiting to see what happens in Europe and what happens with government policy."

Reacting to the cautious forecasts, investors drove Cisco shares down by $1.62 to $17.16 in after market trading in the hours after the conference call after the company had closed up for the day.

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