Cisco blows away Q1 expectations

Forecasts were upbeat but company surpasses them and own guidance

Even the bullish forecasts for Cisco's Q1 fell far short. Cisco this week posted first quarter results that far exceeded Wall Street, and its own, expectations.

Sales for the first quarter ended Oct. 24, 2009, were $9 billion. Analysts queried by Thomson Reuters were expecting $8.74 billion in revenue. Likewise, earnings for the quarter came in $.05 better per share on a non-GAAP basis than expected. Non-GAAP earnings per share were $.36 vs. Street estimates of $.31.

Sales in the quarter were down 12.7% from the year ago period. Non-GAAP earnings per share were also down, by 14.3% from the first quarter of 2009. On a sequential basis, revenue was up 6% from Q4, 2009. Earnings per share were up 16% from Q4.

The revenue figures even surpassed Cisco's expectations, and guidance. Cisco guided to a revenue dip between 15% and 17% from Q1, 2009.

"The quarter was very strong given our expectations and economic challenges," CEO John Chambers said during a conference call on the Q1 results. "We are very pleased with the results."

Chambers added that he felt like Cisco hit bottom in Q3 of its 2009 fiscal year. Q4 felt like the beginning of the upturn and, well, Q1 feels like "The recovery is well underway," he said.

Results domestically were especially dramatic. Orders in the US were flat from last year's Q1 vs. being down an average of 20% since then.

Enterprise orders were up 10% from last year. 

Chambers added that Cisco was still able to enter 30 market adjacencies while reducing expenses and headcount. A year ago, Cisco employed 67,647; it now employs 63,756, a decrease of almost 4,000 over the past year.

At least 2,000 of those positions were part of the headcount reduction plans announced in Q2, 2009. Another 2,000 were apparently due to the ongoing limited restructurings Cisco implements but does not announce.

Lowlights for the quarter were a 30% year-over-year revenue decline in Emerging Markets; this market was previously pegged by Cisco officials to be capable of 30% to 40% growth annually.

Chambers said pricing in these markets was especially aggressive, making it unappealing for Cisco to aggressively pursue.

Another lowlight was product revenue in certain Advanced Technology segments. Video was down 29% even though revenue for TelePresence grew 100% year-over-year. Application Network Services was down 25%, Storage down 19%, Networked Home down 18% and Unified Communications down 10%.

Indeed, the only AT that grew was Wireless, at 7%.

Switching was down 21% from last year, even though Cisco now has 1,000 customers for its Nexus 7000 data center switch. Router revenue was down 17% from a year ago.

Nonetheless, Cisco guided to a bullishly aggressive Q2. It expects revenue to be up 1% to 4% from last year's Q2, and up 2% to 5% sequentially.

"We clearly had a strong Q1," Chambers said. "We will provide guidance for a strong Q2."

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