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Cisco Rallies in Q2, Hides Optical

Cisco Systems Inc. (Nasdaq: CSCO) met some rosy expectations in its second-quarter earnings call, nudging the stock upwards today.

For its second quarter, which ended Jan. 28, Cisco reported net income of $1.4 billion, or 22 per share, on revenues of $6.63 billion, compared with net income of $1.3 billion, 20 cents per share, on revenues of $6.55 billion in the previous quarter.

For its second quarter a year ago, Cisco reported net income of $1.4 billion, 21 cents per share, on revenues of $6.06 billion.

Cisco's non-GAAP net income of 26 cents per share beat analysts' forecasts of 25 cents per share as tallied by Reuters Research . Cisco's revenues were on par with the analyst's forecast of $6.62 billion.

Scuttlebutt prior to Cisco's release focused on third-quarter forecasts, which some felt would be higher than predicted. On a conference call with analysts, CEO John Chambers noted that "Q2 was a very strong order quarter," but didn't blow away expectations.

Cisco expects revenue growth of 10 to 12 percent from last year, translating to third-quarter revenues of $6.81 billion to $6.93 billion. Analysts forecasted revenues of $6.91 billion for Cisco's third quarter.

Still, the numbers put some spark back into Cisco, which disappointed analysts last quarter by providing a tepid forecast. (See Cisco Delivers Mixed Bag.) In after-hours trading, Cisco shares were up 75 cents (4.2%) to $18.84.

Officials reported that Scientific-Atlanta will contribute $250 million in revenues to Cisco's third quarter -- presuming the acquisition is made six weeks before quarter's end -- and $525 million in the fourth quarter.

Chambers snuck in a quick statement about changes in Cisco's optical organization: The company will no longer report optical equipment separately, but will merge it into the categories of routing, switching, and "other." Chambers described the move as "a result of the growing amount of investment we are placing in the integration of optical and packet interfaces into our routing and switching products."

He also confirmed that Cisco intends to decrease its investment in TDM-based optical technology. Signs of this move emerged late last year when Cisco made changes to its optical group, including the hiring of former Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) and Polaris Networks Inc. CEO Surya Panditi, and former Cerent exec Ajaib Bhadare. (See Former Avici CEO Joins Cisco, Cisco Swaps Opto Jobs, and Cisco Taps Cerent Vet.)

— Craig Matsumoto, Senior Editor, Light Reading

RTL Rules 12/5/2012 | 4:07:01 AM
re: Cisco Rallies in Q2, Hides Optical What's going on at the former Cerent?

RTL
jasanz 12/5/2012 | 4:07:00 AM
re: Cisco Rallies in Q2, Hides Optical I am not a Cisco fan, but I must admit that it is impressive that a company of their size are still managing to grow around 10% year over year. To put things in perspective, 10% of Cisco's growth is twice as much as other smaller rivals growing at 50%!

Still, it is interesting to see that they have not managed to squeeze more profit from more sales... too much or management layers, perhaps? IP Telephony not delivering the fat margins of Data?
paolo.franzoi 12/5/2012 | 4:07:00 AM
re: Cisco Rallies in Q2, Hides Optical
RTL,

They have had some small layoffs over there. Word on the street is Ajabe is back to move the product to India then close up Petaluma.

seven
thenight62 12/5/2012 | 4:07:00 AM
re: Cisco Rallies in Q2, Hides Optical Are you insane? $1.4B on $6B in revenue is almost 25% operating margin. That is unheard of by almost any company. If Exxon had that kind of operating margin, they would have made $100B in profit last year instead of their paltry $30B.

Sisyphus 12/5/2012 | 4:06:56 AM
re: Cisco Rallies in Q2, Hides Optical As far as margins in networking go, nobody does it like Cisco. But the question is whether their historical infatuation with fat margins may become an issue eventually wherever the game becomes more competitive. They conceded major access parts (DSLAMs, for example, but admittedly they got the product all wrong) to others, and not find themselves in a major battle against Alcatel around that beachhead on low-margin-island. As any military strategist knows, there are positions you need to maintain at any cost. The SA acquisition -and the admission the margin model is different- seems to indicate that Cisco is willing to consider sacrificing margins where it must, probably to beef them up elsewhere as (sceptics would say "if") they establish end-to-end dominance.

Pete Baldwin 12/5/2012 | 4:06:53 AM
re: Cisco Rallies in Q2, Hides Optical So, does Cisco count as a growth company again? Chambers keeps hammering on "10 to 15% revenue growth" per year, and the analysts who've been bullish on that plan are issuing "Told ya so" notes today.

The stock was up today, at least ...
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