March 25, 2023

Cisco Rides Technology Trends to 14.5% Increase in Profit

The world’s largest maker of networking gear has stumbled in recent years as companies bought less and new competitors arose. In response, Cisco moved into technologies like online video, cloud computing and delivery of high-speed Internet over wireless networks.

Those investments appear to be paying off. On Wednesday, Cisco said its sales of switches and routers were basically flat in its third fiscal quarter, which ended April 27. Sales of equipment for big cloud-computing data centers, video and wireless systems, however, were substantially higher.

“This is where the action is,” said John Chambers, Cisco’s chief executive, in an interview after the earnings announcement. “We bet on some of these seven years ago, now they’re paying off.”

Mr. Chambers wants Cisco to diversify into building sophisticated networked systems with many parts. That could prompt growth of its main switching and routing businesses, because it would mean even more Internet traffic from sensors, consumer devices, and industrial products to and from the Internet.

Cisco needs something to revive those businesses, which still make up nearly half of its revenue. Sales of switching gear, Cisco’s biggest sector, fell 2 percent compared with a year ago, while router sales were flat. Video equipment sales grew 30 percent, wireless equipment rose 27 percent and data center gear was up 77 percent, but their total revenue was about half that of switches and routers.

Over all, Cisco’s net income rose 14.5 percent compared with a year earlier, to $2.5 billion, or 46 cents a share. Revenue was up 5.4 percent, to $12.2 billion. By the nonstandard accounting measures popular with many tech companies, Cisco had net income of 51 cents a share, up 6.3 percent from a year earlier. Wall Street analysts, based on a survey by Thomson Reuters, had projected net income of 49 cents a share and revenue of $12.18 billion.

“The new products got them out of what looked like a tough quarter,” said Eric Suppinger, an analyst with JMP Securities in San Francisco.

Results for Cisco, which is based in San Jose, Calif., are often taken as a barometer of overall business spending. Sales in North America rose 10.4 percent, to $7.1 billion, and Mr. Chambers described the business environment as “slow but steady.” Sales in Europe were lower, he said, primarily because of weakness in countries like Spain. “You’re beginning to see Europe bottom out, with the exception of the south,” he said.

Cisco shares were up more than 8 percent in after-hours trading, after closing down 0.28 percent at $21.21.

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