Cisco Profits Rise, Beating Forecasts

Cisco, the world’s largest computer networking company, enjoyed years of rapid growth in the early days of the Internet, only to struggle against new competitors. While the company is unlikely to see sustained double-digit growth, the efforts of John T. Chambers, Cisco’s chief executive, to get Cisco into newer businesses like Internet video and maintain a disciplined cost-consciousness have plumped profits.

Cisco released a fiscal first-quarter earnings report on Tuesday that was better than most of Wall Street had expected. Net income rose 18 percent to $2.1 billion, or 39 cents a share, from $1.8 billion, or 33 cents a share, a year ago. Revenue rose 6 percent to $11.9 billion from $11.3 billion a year earlier.

“The growth rate we’re putting out there is clearly aggressive,” Mr. Chambers told analysts after the release of the earnings. “Once we get focused on an item, we’re able to hold it very well.”

Cisco’s growth was particularly notable for the headwinds it faced. Government buying, which is a significant part of Cisco’s sales, was off 6 percent, and worldwide purchases by big businesses fell 1 percent. Sales fell 10 percent in the region dominated by Europe. Revenue in switching, Cisco’s core business, declined 2 percent.

Despite those challenges, Cisco’s video business grew rapidly, thanks partly to a $5 billion acquisition of the NDS Group, a British-based video company, last spring. Cisco’s sales of products for the wireless and data center market also boomed, thanks to the popularity of mobile devices and cloud computing.

“It’s a different company now, slower growing, but he has got a lot of options,” said William Kreher, senior technology analyst for Edward Jones.

Shares rose more than 7 percent in after-hours trading. They closed Tuesday at $16.85.

Analysts have been particularly concerned whether Cisco could sustain its profit margins. In recent years, Cisco has been under assault from China’s Huawei in the developing world and Hewlett-Packard for its European and American customers.

By consolidating much of its manufacturing and offering big-ticket networking systems, Cisco’s gross margins for the quarter rose to 62.7 percent from 62.4 percent a year ago.

While Mr. Chambers did not expect a turnaround soon in sales to Europe and the developing world, he indicated that American companies, once they got over anxieties about the standoff on the federal budget, could provide more growth. “The companies do have the cash to spend if they have the confidence to invest,” he said.

For the current quarter, Mr. Chambers forecast revenue of $11.9 billion to $12.2 billion. Wall Street analysts have been estimating $12 billion.

Article source: http://www.nytimes.com/2012/11/14/business/cisco-profits-rise-beating-forecasts.html?partner=rss&emc=rss