Cisco Beats by a Penny

Cisco Systems Inc. (Nasdaq: CSCO) today reported its fiscal first-quarter revenues rose 9 percent from a year ago, thanks to more efficient operations and market share gains over its competitors (see Cisco Reports on Q1).

But because of slower capital spending by enterprises and service providers alike, the company says revenues will be "flat to down a little" during its upcoming quarter.

The networking giant reported pro forma earnings of 14 cents a share on revenues of $4.8 billion for the fiscal period ended October 26. During the year-ago quarter Cisco earned 4 cents a share on $4.4 billion in revenues.

Analysts expected Cisco to report earnings of 13 cents a share on revenues of $4.8 billion, according to Multex.com Inc.

Including one-time charges, Cisco's actual net income for the quarter was $618 million or 8 cents a share, compared to an actual net loss of $268 million or 4 cents a share during the year-ago quarter.

In after-hours trading on the Island ECN, Cisco was trading up $0.34 (2.68%) to $13.03. Cisco's stock closed up $0.27 (2.1%) to $12.96 in regular trading on Wednesday. Shares were also helped by the Federal Reserve's half-point interest rate cut. The Fed cut its rate for federal funds -- the interest banks charge each other on overnight loans -- to 1.25 percent, a move that took Wall Street by surprise and boosted all stocks.

We are very pleased with our results in those areas that we can control and influence," says John Chambers, Cisco's president and CEO.

However, after several minutes of hemming, hawing, and generic doubletalk about his outlook on Cisco's business, Chambers finally noted that he thinks revenues for Cisco's second fiscal quarter of 2003 will be "flat to down a little." Larry Carter, Cisco's chief financial officer, defined "down a little" as down three to four percent.

The company blamed "seasonality and tightening visibility" among its customers for its slipping book-to-bill ratio, which dropped below 1. This ratio means the company is booking orders at a slower rate.

Chambers also was cautious about the service provider market. "There continues to be a good chance that there will be waves of capex reductions among the world's service providers."

During the quarter Cisco cut its headcount to 35,278, a decrease of 288.

Going the other way were Cisco's gross margins, which rose to 69.3 percent, up from 54 percent during the year-ago quarter. Larry Carter attributed the increase to falling component costs and the fact that Cisco has consolidated its suppliers to gain additional volume discounts. Also, given Cisco's low inventory, "all new purchases are at current market prices," Carter says.

The company's inventory fell to $828 million from $1.7 billion, and the company ended the quarter with more than $21 billion in cash and investments.

Cisco funded $82 million in commitments to its structured loans during the quarter. The company has $400 million in total loan commitments to its customers, $200 million of which is eligible for drawdown, Carter says.

When one analyst asked about whether Cisco would buy a company the size of Lucent Technologies Inc. (NYSE: LU) or Nortel Networks Corp. (NYSE/Toronto: NT) -- or a portion of either business -- in order to gain share in the service provider market, Chambers replied it was "very unlikely." He says Cisco's acquisition strategy is to "buy smaller companies with geographic proximity, where possible."

— Phil Harvey, Senior Editor, Light Reading
BobbyMax 12/4/2012 | 9:23:41 PM
re: Cisco Beats by a Penny Cisco is reported to beat Wall Street expectation at least 13-14 times during the previous years. The computations of earning estimates by Wall Street Analyst is very questionable and non-scientific. To remove the suspicion of the investors, it is very vital release nthe same information as it does to its favorite "Wall Street Analysts".

I have never seen any references to the fact that many individuals and institutions have lost billion of dollars when they invested in Cisco when the stock was trading close to $65 per share.

Large or small companies do not have a lot of capital to buy equipment if they have a system that works and meets their needs.

Beating expectation is a code world developed by Wall Street to induce people to buy. It just like asking poor people to drink more so that somebody can profit.
puddnhead_wilson 12/4/2012 | 9:23:40 PM
re: Cisco Beats by a Penny >I have never seen any references to the fact that many individuals and institutions have lost billion of dollars when they invested in Cisco when the stock was trading close to $65 per share.

you GOTTA be kidding, right? even my elderly uncle with alzheimers knows people have lost money in ALL tech stocks! Not to mentin everything else in your post, which has been discussed ad naseum for well over a year now in every media outlet (including this one). where the heck have YOU been?
beowulf888 12/4/2012 | 9:23:30 PM
re: Cisco Beats by a Penny Heh, heh, Booby. A half dozen times? Until the telecom meltdown, Cisco beat earnings by a penny for 40+ quarters in a row! The reason Cisco was able to do this was twofold:

1. They've got one of the best financial tracking systems of any Fortune 500 company. The can do a trial closing of their books in less than 24 hours, and Sr Mgrs get real-time reports on sales. The instant it looks like they're going to come up short, well, the sales force puts the pedal to the metal. And at critical times, Sr Execs have been known to roll up their sleeves and help the manufacturing people box and ship product (since a sale isn't counted until the product ships).

2. The other reason is that Cisco still announces its quarterly results with "pro forma" financial statements. A "pro forma" statement doesn't necessarily conform to GAP, so Cisco has some leeway to juggle the figures to make their statements look more favorable. So they might be able to squeeze out an extra penny by spin. Nothing illegal about this, but some consider it deceptive. However, bottom line, Cisco was able to achieve a 69 percent gross margin last quarter. That's an awesome achievement in these rough times.

Financial control is probably the major reason that Cisco has been successful. They're seldom the technical leader in any of the products, but they know how to pinch a penny and how to maximize their revenue stream. Too bad LU and NT haven't learned that lesson, yet.

jamesbond 12/4/2012 | 9:23:28 PM
re: Cisco Beats by a Penny beowulf wrote:

And at critical times, Sr Execs have been known to roll up their sleeves and help the manufacturing people box and ship product (since a sale isn't counted until the product ships).


Bullshit. Manufacturing is done in Mexico or
somewhere else by some other company.
tink 12/4/2012 | 9:23:26 PM
re: Cisco Beats by a Penny jamesbond wrote:

Bullshit. Manufacturing is done in Mexico or
somewhere else by some other company.


Final touches (e.g., software) were once always applied in San Jose and that was the shipping point to all customers. Hence, when lots of product needed to get out the door, everyone became a shipping clerk.

Chambers said in yesterday's conference call that some shipment activities have now been moved out to suppliers to save money.
capolite 12/4/2012 | 9:23:16 PM
re: Cisco Beats by a Penny Cisco is one of the best run companies in the world despite the technical shortcomings of some of their products. They hired excellent people and have a strong financial system and control, even if they are not infallible. Cisco has been able to purchase back $2.9B of stock, cover $1.9B in overly aggressive real estate leases and some equally huge number of questionable bookings and leases to SP's around the globe. Yet Cisco still has an impeccable balance sheet and will have a dominance of network equipment makers approaching that of Intel and Microsoft in their industries. You don't have to love Cisco but you should admire them.
blank_reg 12/4/2012 | 9:23:16 PM
re: Cisco Beats by a Penny Just some Cisco Trivia,

Most of the final shipping used to be done out a certain building on the Cisco campus. Since Larry Carter, the CFO, can do a virtual close he can tell what the numbers are going to be for the quarter almost hourly. When Cisco was selling a lot more, the sales system would close when Cisco was going to do a penny over. This means the salesperson would be told at the end of the quarter to push the sale into next quarter, because Cisco did not need it to make the penny over number.

It was easy to tell how well Cisco was doing by noting when the trucks would be missing from the shipping building. The earlier this happened, the better Cisco sales were. We used to go over at lunch and see if the trucks were still there. People would say things like Gǣwow, I think we are having a four-week quarterGǥ meaning the sales system closed four weeks before the quarter did.

Since Cisco is making much smaller, consumer type products now, the manufacturing can be done in Mexico etc, tested during the build, and shipped directly to the two-tier channel. What would happen is certain high value products like the 12K, would need final help with shipping from San Jose, and that is when whole groups would go to the shipping area to help get these products out the door.

These were fun days. I think these days were really team building excises.

My dad used to tell me that it was not how much money you made, or having some left over at the end of the month, it was knowing how much you would have left at the end of the month. It seems most of CiscoGs competitors will never know.

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