Optical/IP Networks

Cisco Beats Estimates

Cisco Systems Inc. (Nasdaq: CSCO) beat Wall Street's expectations during its quarter ending October 27, 2001. The company reported pro forma income of $332 million, or 4 cents a share, on sales of $4.4 billion when excluding the effects of acquisition charges, excess inventory charges, and other items.

Wall Street analysts only expected Cisco to earn 2 cents a share on a pro forma basis on $4.2 billion in revenues. Cisco's first-quarter revenues also were within its previously stated guidance of between $4.09 billion and $4.3 billion in revenues.

Including the special charges, the company reported a net loss of $268 million, or 4 cents a share, for its first fiscal quarter of 2002, thanks to a prolonged economic slowdown. Cisco's actual results for the quarter were lower than the net profit of $798 million, or 11 cents a share, that it reported during the same quarter last year.

Cisco's net sales rose 3 percent sequentially from the $4.3 billion in net sales that it reported for the fourth quarter of fiscal 2001. The company, however, reported pro forma earnings of 18 cents a share on revenues of $6.5 billion during the same period last year.

All and all, the numbers were better than Wall Street expected, and they appeared to leave a positive impression. In trading after-hours on the Island ECN Cisco's stock rose almost a dollar to 18.78. In trading on Monday before earnings were announced, Cisco had risen 0.64 (3.71%) to 17.90.

In late September, Cisco skeptics incorrectly guessed that the company's revenue numbers for the quarter might fall as low as $3.9 billion (see Cisco: Tough Quarter in Progress).

Cisco's CEO John Chambers says he thinks the company's revenues for its second fiscal quarter of 2002 will be "flat to up slightly, or showing low single-digit sequential growth."

The company's headcount at the end of the quarter was at 37,546. Cisco employed approximately 36,000 people at this time last year and some 38,000 people as of July 2001.

Cisco's operating expenses dropped 5 percent, or $105 million, during the quarter, according to CFO Larry Carter. The company reported having $19.1 billion in cash and other investments, and it repurchased $350 million of its stock during the quarter.

Carter says 36 percent of Cisco's revenues came from router sales, 45 percent from sales of switches, and 11 percent from "optical equipment, software, and other miscellaneous products."

Among the product segments showing the best sequential growth are Cisco's enterprise voice and video products, Chambers says. He says the products showing the worst sequential growth include Cisco's optical transport gear.

Cisco's service provider business in Europe continues to be "very challenging," Chambers says, noting that it was "off in double digits."

Chambers says the challenges Cisco faces in the service provider market are no different than those it overcame in the enterprise market years ago, and he still thinks Cisco can be the number one equipment provider in that market. "We actually view the current slowdown in the service provider market to play to our long-term advantage... While we clearly understand that in many people's view this is a stretch goal, we usually achieve our stretch goals."

Chambers predicts continuing consolidation in the service provider market worldwide and says having fewer select vendors in the service provider network "plays well to [Cisco's] advantage." He says Cisco is expecting a "modest share gain" in high-end routers for the quarter, once industry analyst numbers are available.

The September 11 attacks on America caused a "modest disruption in orders" for Cisco, according to Chambers. He says his discussions with business leaders show that there is "still no consensus as to how long the economic downturn will last."

— Phil Harvey, Senior Editor, Light Reading
PantomineHorse 12/4/2012 | 7:37:40 PM
re: Cisco Beats Estimates More "proforma earnings". Ought to be outlawed.

Another company with an unjustified, astronomical p/e.

Just a few years ago, if a company could not generate consistent, q/q (net) earnings & revenue growth, their p/e(s) would be single digits.

Incredible lowering of the bar.

Under "ordinary circumstances", CSCO would be great shorting material.

PantomineHorse 12/4/2012 | 7:37:37 PM
re: Cisco Beats Estimates Sorry for this wasted bandwidth -- that's "tongue & cheek", not "touch & cheek".

While I am it, Enron (ENE) my favorite "financial derivatives" company, once again tanking, despite rumors that Royal Dutch Shell might acquire. See 'ya later ENE. Folks here with an engineering mind, brush up on the subject matter of "financial derivatives". May come in handy. Stick around for more.

Unfortunately, until about a week ago, wouldn't short stocks because of some "crazy belief system". I hope the average investor overcomes the same (stupid) hesitancy that I once had.
PantomineHorse 12/4/2012 | 7:37:37 PM
re: Cisco Beats Estimates "Overall, this is good news."

Admittedly, some of my comments were 'touch & cheek'.

For example, stock can't at single digits p/e since it can't trade at a negative value. In any event, its worth a few bucks when you consider it may be the only one (of a few) left still standing.

After all, someone has got to make voice switches, or is that Avaya?
kbkirchn 12/4/2012 | 7:37:37 PM
re: Cisco Beats Estimates CSCO is doing better than its peers (LU/NT). In the land of the blind, the one-eyed man is king.

Actual Net Loss was 268M. Writedown of 850M in securities caused that. Actual revenue was up 200M. Pro Forma Profit driven mostly by expense reductions.

Overall, this is good news.
toll booth willy 12/4/2012 | 7:37:34 PM
re: Cisco Beats Estimates Give em a break.
PantomineHorse 12/4/2012 | 7:37:22 PM
re: Cisco Beats Estimates Toll Booth Willy wrote: "Give em a break."

Hey Toll Booth. Are you talking to me about my Enron, ex-Bandwidth trader, energy-giant, financial derivative kingpin.

One of my biggest fears is articulated by Las Vegas Freddie, with that name -- someone we can all trust.

Here is what Freddy has to say.


Dubya, get the shovel ready. After all, you know the ENE people.

Folks, maybe time to cover the ENE short (if you've been paying attention, thus far).
kcufde 12/4/2012 | 7:37:07 PM
re: Cisco Beats Estimates hi
cisco earnings shows that chambers is a able administrator, john roth should learn fm chambers, at least by eating his shit on how to keep the company intact
temporary 12/4/2012 | 7:22:45 PM
re: Cisco Beats Estimates John Chambers bought my company (December 99), thanks John.

OK,what do I really think,

1) When John bought the company new Internet connections were falling by 12% per year.

2) The main concern of Cisco at the time was getting permission to lay 200 acres of concrete in the last remaining natural space in Silicon Valley and build a royal headquarters. This was a big deal, and Cisco could not understand the resistance to the project in Silicon Valley.

I told John that I could fly into San Jose airport from 150 miles away, take a cab to corporate headquarters (2 mile away) faster than I could make the commute the 15 miles across Silicon Valley. Cisco is a networking company for chrisakes. After Cisco crashed, the project was cancelled having spent some 20 million in lobbying, planning, and land purchases.

3) My immediate boss thought the company was doing great because of back log. As I expected, the back log was uniformly cancelled with the internet crash of 2001.

4) The company Cisco purchased had no sales, and a product the customers (cable television operators) really did not believe in. Only once in the 1.5 years I was there did my VP ever mention the idea of making a potentially profitable business plan.

5) A mathematical analysis showed that our product offered about a 10% improvement in bandwidth usage. This was applied to the video end of CATV which was realizing a %1000 gain in bandwidth by simply going to digital video.

6) Funny thing, the immediate vice president of our group seemed to have a personal relationship and shared culture with the venture firm that funded our company.

7) After four years (including 1.5 years at Cisco) our company had sold about 10 million dollars in product after a total investment of $250 million. Then sales dropped out.

8) When at Cisco I regularly received (once per month) e mail from Kevin Kennedy which consisted (statistically) of 40% acronyms and a re-organization of his department. I returned mail to him and suggested he speak plain English (or Chinese at least). His secratary responded that they could not do that because networking was after all a business of acronyms.

9) Finally, fed up I contacted the oldtime router technologists at Cisco and Juniper. We outlined a plan to add two very small changes in IGMP that required 200 lines of code and eliminated our product line entirely. This was exactly in accordance with our new marching orders to rely on open standards and get back to basics.

10) I was laid off and took a severence package worth more than my remaining stock options. With a budget of $500 I was able to assemble an informal consortium of digital video companies and networking vendors to make such small changes in standards as to accomplish our original goal. Even so, the market is still two years out.

11) What was really embarrassing was the nicknames that my immediate vice presidents at Cisco had in the cable industry (Prince Disruption (Kevin Kennedy) and Prince Convergence (Carson Chen).
John Chambers gave a truly bad speech to the CATV industry. He said that the CATV industry better hop on the internet bandwagon or DSL would overtake them. Industry analysts pointed
out that the CATV providers were growing at 10% per year while Cisco sales were dropping at 10% per year (Jan 2001). Since then, Cisco's major DSL customers crashed and burned.

My Impressions:

John wanted a break away strategy and bought into the CATV vendor business, which neither John nor Kevin even understood. John's planners seemed to think that adding more complexity to routers would increase barrier to entry. I do not think John really understood the internet industry (I think the idea is to simplify the router as technology

The cable industry wanted the simplicity of the router, and we were selling them routers with ever more complexity. We were looking past each other. No one at Cisco (and I looked hard) understood the cable digital TV industry. (Our group was selling into their digital video business, not the profitable cable internet business).

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