Cisco revenue inched up in Q4

The company's profit increased 56 percent as it trimmed staff in some areas

Cisco Systems posted a small sales gain of 4 percent and a larger boost in profit for its fiscal fourth quarter on Wednesday.

The company's revenue hit US$11.7 billion for the quarter ended July 12, up 4 percent from a year earlier. Its net income rose 56 percent from the year-earlier quarter, to $1.9 billion. Cisco earned $0.36 per share.

AS PREDICTED: Solid Q4 expected from Cisco

Economic woes in Europe continue to weigh on the global outlook for the tech industry, Chairman and CEO John Chambers said on a conference call to discuss the results. Cisco's unit orders for Europe, the Middle East and Africa fell 6 percent in the fourth quarter.

"It will be as tough as you're hearing" in Europe, Chambers said. Among other factors, the major European service providers don't expect to make major capital expenditures in the second half of this year, he said.

Cisco said it did see some signs of growth in the U.S., though those might not signal a continuing trend, Chambers said.

Revenue from Cisco's core businesses of switching and routing was relatively flat overall, and its collaboration business saw an 8 percent decline, led by falling Telepresence videoconferencing revenue. Strong points included the Unified Computing System server platform, which saw order growth of 58 percent, and wireless, with revenue up 22 percent. Service-provider rollouts of Wi-Fi hotspots are now in full swing, helping to drive wireless growth, Chambers said.

Chambers said Cisco is still committed to its partnership with VMware and EMC despite VMware's recent acquisition of SDN (software-defined networking) startup Nicira. The company has long experience at partnering with competing vendors, he said. In the so-called VCE partnership, EMC contributes storage and VMware provides virtualization software for combined data-center packages.

"I think you'll see us work this out," Chambers said.

"We fully will control our own destiny, not to be dependent on anyone in terms of our long-term strategy, although strategic partnerships must be a part of achieving that strategy," he said.

Cisco is well-positioned to compete in network virtualization because it will require more than software, Chambers said. Cisco's strength in network hardware will play a key role, he said.

"We think it's going to be ASICs, hardware and software combined," Chambers said, referring to the application-specific integrated circuits Cisco makes for many of its switches and routers.

Cisco is continuing to adjust its organization and product lines even after carrying out a broad reorganization announced last year, which cut $1 billion of annual expenses and more than 12,000 jobs. In May, the company killed its Cius tablet, and just last week it announced the elimination of about 1,300 more positions.

Cisco faces numerous challenges to go with its wide-ranging product portfolio. One of the largest is the transformation many observers expect with SDN, which may leave some of Cisco's equipment out of the loop. During the quarter, the company announced its own network programmability architecture, called Cisco Open Network Environment. And just last week, the company disclosed it is developing a new, low-latency data-center switch, the Nexus 3500, probably aimed at rivals using Infiniband.

Not counting one-time items, the company recorded earnings per share in the quarter of $0.47, just over the $0.46 forecast by analysts surveyed by Thomson Reuters. Quarterly revenue also slightly beat analysts' expectations of $11.7 billion.

For the current quarter, Cisco forecast year-over-year revenue growth of between 2 percent and 4 percent, and earnings per share growth of 45 percent to 47 percent. That forecast excluded the company's recently completed $5 billion acquisition of video software vendor NDS Group.

For the full 2012 fiscal year, Cisco reported revenue of $46.1 billion, up 7 percent from fiscal 2011, and earnings per share of $1.49, up 27 percent from 2011.

Also on Wednesday, Cisco announced a new capital allocation strategy that includes increasing its quarterly dividend by 75 percent to 14 cents per share. The company committed itself to returning 50 percent of its free cash flow to shareholders in the form of dividends and stock repurchases.

Copyright © 2012 IDG Communications, Inc.

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