Cisco Beats Street; Growth is Flat

Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers says he's confident in his company's chances, but won't go so far as to declare that the enterprise and service provider industries have hit their lowest points.

The networking giant announced Wednesday that it had beaten Wall Street's expectations for its second quarter of fiscal 2002. However, Cisco's quarterly profits were down from a year ago (see Cisco Officially Reports).

Cisco reported pro forma profits of $664 million, or 9 cents a share, for the period ended January 26, 2002. The company said revenues for the quarter were $4.8 billion. Wall Street analysts had been expecting Cisco to earn 5 cents a share on pro forma revenues of about $4.5 billion.

U.S. enterprise sales were "relatively flat," and its service provider sales continued to decrease, according to Cisco CEO John Chambers.

The company's revenues from optical networking, software, and other miscellaneous products shrank to 9 percent of revenues in Q2 from 11 percent of revenues in Q1, according to Cisco CFO Larry Carter.

Thirty-three percent of the company's Q2 revenues came from router sales.

The company ended the quarter with $5.3 billion in cash and cash equivalents.

Chambers also says that the company's headcount decreased "on a voluntary and involuntary basis" by 760 people during the quarter.

Cisco had already announced some aspects of its earnings this morning, saying that its quarterly earnings exceeded the current consensus estimates of earnings per share and revenues for the second quarter (see Cisco Spills the Beans).

During the year-ago quarter, Cisco reported revenues of $6.75 billion and a pro forma profit of $1.33 billion or 18 cents a share (see Cisco Reports 2Q Results). When excluding one-time charges, Cisco actually earned $660 million or 9 cents a share for this quarter, compared to actual earnings of $874 million or 12 cents a share for the year-ago period.

For the first six months of fiscal 2002, Cisco's actual profits were $392 million, or 5 cents a share, compared with profits of $1.7 billion, or 22 cents a share, for comparable year-ago period.

Blaming limited visibility in their customers' businesses, Cisco only gave financial guidance for one quarter, saying that revenues would be "flat" to up by a "very low single digit increase."

— Phil Harvey, Senior Editor, Light Reading
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signmeup 12/4/2012 | 10:58:35 PM
re: Cisco Beats Street; Growth is Flat LR - "The company ended the quarter with $5.3 billion in cash and cash equivalents."

Directly from the Cisco web page:
"Our cash position grew approximately $2.1 billion this quarter to a total of $21 billion."

If I'm not mistaken, there is a wide margin between 5.3B and 21B, but I get confused with so many zeros......

What's the real number?
LightMan 12/4/2012 | 10:58:34 PM
re: Cisco Beats Street; Growth is Flat I heard Chambers say on CNBC that their DSO's are 23 days. How is that possible? They are not doing much/any vendor financing which is typically recognized immmediately on contract signing, nor do their online credit sales for small businesses account for that much.

Do they do a lot of pre-paid deals? Are their terms /10?

Norald 12/4/2012 | 10:58:33 PM
re: Cisco Beats Street; Growth is Flat Paul usually does a good job with his research. I agree with you that 5.3 B and 21 B are pretty far about. I bet Paul's number is the real number.
agreenfi 12/4/2012 | 10:58:33 PM
re: Cisco Beats Street; Growth is Flat $21B is correct. Larry Carter broke it down on the results call as 1.3B in equities at current market value, and 19.7B in cash, money market funds and fixed incomes all rated AA or better. Its a staggering pile.
Scott Raynovich 12/4/2012 | 10:58:31 PM
re: Cisco Beats Street; Growth is Flat The number is correct. The difference is cash and cash equivalents vs. including all of the investments.

From Cisco's balance sheet:

Cash and cash equivalents: $ 5,337 (in millions)

If you add short-term investments, accounts receivables and other investments, you get to $21B. But technically, that is not their "cash position"
Scott Raynovich 12/4/2012 | 10:58:30 PM
re: Cisco Beats Street; Growth is Flat Again, the balance sheet says:

Cash and cash equivalents $ 5,337 (in millions)

Carter is including investments in "cash," but we used the cash number on the balance sheet.
gea 12/4/2012 | 10:58:29 PM
re: Cisco Beats Street; Growth is Flat Well, this is one thing I don't really understand. If expectations for Cisco were 9 cents and then they announced 5 cents, wouldn't the financial community be screaming bloody murder?
In this case, the news is "good", but the visibility was still poor. This means that at least people in Cisco had singificantly more visbility than they were allowing to the outside world...isn't that a problem? I mean, it's not like they only new the difference was 4 cents a share yesterday.

I'm not really trying to make a point here, but I AM hoping some of the analysts out there could explain why this is OK.
signmeup 12/4/2012 | 10:58:29 PM
re: Cisco Beats Street; Growth is Flat Scott,

Thanks for the clarification. That makes sense; however I didn't think that they can include accounts receivables into that pile. I thought it was just cash and investments- but I could be wrong.

Anyone know if they include AR in their cash position?

p.s. Scott / Phil, I wasn't knocking ya, just wanted clarification on whether Cisco has a lot of cash or a whole lota cash.
Scott Raynovich 12/4/2012 | 10:58:29 PM
re: Cisco Beats Street; Growth is Flat receivables was about $1B or so.

Balance sheet is below:

ASSETS (millions)January 26, 2002/ July 28, 2001

Current assets:
Cash and cash equivalents $ 5,337 $ 4,873
Short-term investments 2,211 2,034
Accounts receivable, net of allowance for doubtful accounts of $336 at January 26, 2002 and $288 at July 28, 2001 1,150 1,466
Inventories, net 1,023 1,684
Deferred tax assets 2,085 1,809
Lease receivables, net 389 405
Prepaid expenses and other current assets 570 564
Total current assets 12,765 12,835
Investments 12,299 10,346
Restricted investments 1,161 1,264
Property and equipment, net 2,504 2,591
Goodwill 3,326 3,189
Purchased intangible assets, net 1,224 1,470
Lease receivables, net 67 253
Other assets 3,358 3,290
TOTAL ASSETS $ 36,704 $ 35,238

Current liabilities:
Accounts payable $ 371 $ 644
Income taxes payable 277 241
Accrued compensation 1,414 1,058
Deferred revenue 3,047 2,470
Other accrued liabilities 2,366 2,553
Restructuring liabilities 278 386
Total current liabilities 7,753 7,352
Deferred revenue 790 744
Total liabilities 8,543 8,096
Minority interest 18 22
Shareholders' equity 28,143 27,120
priam 12/4/2012 | 10:58:27 PM
re: Cisco Beats Street; Growth is Flat I venture that anytime you see a company meeting the estimates (or classically, beating them by 1 cent) you can assume not that they have great "visibility" but that they've been cooking the books.

Post-Enron, the degree of surprise/honesty may increase.
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