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Optical/IP

Cisco Beats the Street, Ups Repurchase

Cisco Systems Inc.'s (Nasdaq: CSCO) fourth-quarter profits rose substantially from a year ago, fueled by stronger enterprise equipment sales. The company's revenues also rose sequentially from the last quarter, though they are still 15 percent lower than those from the year-ago period (see Cisco Reports Q4).

The results reported Tuesday for the quarter ended July 27 were above expectations. In trading ahead of the news, shares of Cisco ended the day up $0.69 (6%) to $12.05.

Cisco reported pro forma earnings of $1 billion, or 14 cents a share, on revenues of $4.8 billion. Using generally accepted accounting principles (GAAP), Cisco earned $772 million, or 10 cents a share during the quarter.

Analysts were expecting Cisco to report pro forma earnings of 12 cents a share on revenues of $4.9 billion for the quarter, according to a survey by Multex.com Inc. While Cisco beat the earnings per share estimate, it fell just short of the quarterly revenue guess.

On its earnings conference call, Cisco CEO John Chambers remained concerned about service provider spending worldwide: "There's a good chance there may be a continuing wave of [service provider] capex reductions worldwide."

Still, Chambers remains bullish on Cisco's chances in the service provider equipment market. "We are uniquely positioned in the industry, if we continue to execute properly, to become the number one or number two player in the service provider market."

The company also announced it would increase its stock repurchase program to a total of up to $8 billion through September 12, which is $5 billion more than it initially announced in September 2001. To date, the company says it has repurchased about $2 billion in shares.

For its fiscal year 2002, Cisco reported revenues of $18.9 billion, a 15 percent drop compared to fiscal 2001. Cisco's GAAP earnings for fiscal 2002 were $1.9 billion or 25 cents a share. Its pro forma earnings for the period were $2.9 billion or 39 cents a share. Those numbers are lower than fiscal 2001, in which Cisco reported pro forma earnings of $3.09 billion, or 41 cents a share, on revenues of $22.29 billion. With all charges added in, however, Cisco actually lost $1.01 billion, or 14 cents a share for that fiscal year.

All eyes have been on Cisco this week, since the company's earnings report is seen as an indicator of the general health of the networking and telecom sectors. Adding to the attention were rumors that Cisco's chief financial officer, Larry Carter, was getting set to retire (see Cisco Looking at Maffei?). The company said Carter may retire next year.

Despite buying two startups during the quarter, Cisco's overall headcount dropped 369 to 35,566, according to Carter.

Cisco's gross margins improved again during the quarter to 67.7 percent of revenues, up from 63.1 percent in the prior quarter. Analysts say several things contribute to this, including cheaper components; better outsourcing contracts; and outsourced engineering, which leads to more efficient operations.

However, some investors were skeptical of Cisco's numbers. One hedge fund manager, asking to remain unnamed, said he didn't understand how the company was expanding profit margins with revenues growth remaining relatively flat.

The difference in the equation may come down to the finer points of accounting. After taking a $2.2 billion writedown on the value of its unused inventory more than a year ago, Cisco avoided some smaller inventory charges against earnings going forward. Cisco continues to sell the inventory it wrote down last year, and the results of those sales are reflected in its GAAP earnings, the company says, not its pro forma numbers.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
layer3 12/4/2012 | 10:00:05 PM
re: Cisco Beats the Street, Ups Repurchase 1- Larry Carter IS retiring, next May
2- Cisco has no plans of ever expensing stock options
3- Carter and Chambers both began the analyst call by stating they WOULD certify their numbers

The 800 pound gorilla seems to be stable. Lets hope its good news for the rest of us too...

L3
kyanneck 12/4/2012 | 10:00:03 PM
re: Cisco Beats the Street, Ups Repurchase For the past 2 qtr's, CSCO has delayed my orders in the last few weeks of the qtr. Some profitable business too, like 6500's and Smartnet maintenance contracts for no (valid) apparent reason. Now, the stuff is getting released.

Guess I'll open an options account in 2.75 months..

greaterchinacorp 12/4/2012 | 10:00:01 PM
re: Cisco Beats the Street, Ups Repurchase I don't like the use /release of pro forma numbers in addition to the GAAP figures. If I held shares long I would back up my investment with 3 to 6 month puts , as a hedge. PE ration of 80+ is just too high for my liking. GCC
DCITDave 12/4/2012 | 9:59:57 PM
re: Cisco Beats the Street, Ups Repurchase I don't think I missed any of these points.

1) Filed this info in it's own story because it stood alone as newsworthy.
2) "Has no plans of ever?" I didn't hear anyone say that.
3) No longer an issue. The street already knew this.

Thanks very much for reading.
cisco_deepthroat_speaks 12/4/2012 | 9:59:54 PM
re: Cisco Beats the Street, Ups Repurchase Phil, just another opinion here:

1.) if you filed this on it's own without mentioning it in your article, then you effectively missed it in your article which is what the poster said.

2.) i heard chambers say they have no plans of expensing options - this is a valid point by the poster also.

3.) i don't believe the certification of financials is "no longer an issue" - time will tell, but i'll bet the rumors start to fly yet again down the road about whether ceo/cfo put their name to it or not.

all in all, from an unbiased point of view, you have reacted personally to a challenge of the quality of your article - and it shows.



-----------
I don't think I missed any of these points.

1) Filed this info in it's own story because it stood alone as newsworthy.
2) "Has no plans of ever?" I didn't hear anyone say that.
3) No longer an issue. The street already knew this.

Thanks very much for reading.
layer3 12/4/2012 | 9:59:53 PM
re: Cisco Beats the Street, Ups Repurchase Phil,

Didn't mean to diss you; however...

1) Filed this info in it's own story because it stood alone as newsworthy.

Since you edited the original story from "Cisco had nothong to report on this front" to "Carter may retire next year", I'll assume that this was an oversight on your part.

2) "Has no plans of ever?" I didn't hear anyone say that.

From Reuters: "John Chambers said that expensing of options -- regardless of the form or methodology used -- is neither accurate nor easier to understand. He said Cisco will provide the estimated expense of granting options to its employees in footnotes to its financial filings.

Calling for a "cautious direct approach" to the issue of how to account for stock options in terms of companies financial reports, Chambers said he had "strong opinions" about the issue."

3) No longer an issue. The street already knew this.

Call me crazy, but I didn't think your target readers were "the Street". Both Carter and Chambers began the conference call adamantly stating they stand behind their numbers. I thought it was worth a mention (but I'll give you that one.)

Keep up the good work Phil. I do enjoy your work,

Cheers, L3
DCITDave 12/4/2012 | 9:59:32 PM
re: Cisco Beats the Street, Ups Repurchase 1) Still not sure what you mean. If you mean I didn't include the stuff about Carter in the first report, you're right. It was added later. We also put the info in a separate story.

2) As I said, I didn't hear the bit about not expensing options. Perhaps I was filing copy at the time, I'm not sure how I missed it. I am going to follow up, so thanks for heads up.

3) I don't think anyone was seriously expecting them to renounce their numbers and deny their authenticity. But I probably should have mentioned it anyway, since they were reacting to some widely published rumors.

Cheers,
ph
DCITDave 12/4/2012 | 9:59:31 PM
re: Cisco Beats the Street, Ups Repurchase Re: "you have reacted personally to a challenge of the quality of your article - and it shows."

What's wrong with taking criticism of my reporting personally? What should I do instead? Ignore it? Erase it?

I think I should take it personally, so long as I'm not rude or dismissive (which I'm not) and so long as I'm open to correcting mistakes (which I am).

Re: "from an unbiased point of view"

Care to sign your name and job title to that so we can decide for ourselves?

Cheers,
ph
BobbyMax 12/4/2012 | 9:50:02 PM
re: Cisco Beats the Street, Ups Repurchase The game of beating the wall street expectations must stop. This technique has been used to indicate the health of a company. This is very misleading and should not be used as indicator of any thing. Company traditionaaly manipulate numbers in a number of ways. This is propoganda and should not be used as a tool to selling stocks.

John Chambers did not have to tell anything to the wall street analysts. It is well known that large carriers are reducing capex to the tune of 15-20 per year. These numbers are not supposed to rise until 2005.


It is also a wrong practice on the part of Cisco to buy back its stocks. It is wrong for Cisco to attempt to boost its stock evaluation by using this trickery. In the past' Cisco has used all possible tricks to boost its stock evaluation. Let it follow the natural course.

Some of the numbers that Cisco is presenting is rather mindbogling because 70% of Cisco's revenue come from Enterprises and 30% of this incomes from other sources.

Proforma earnings are misleading and Cisco should not indulge in this practice.

To create a hero image of a publicly traded company based on an individual in a company is very unfotunate in our society very wrong. This is how wrongful acts within a company occur.

Nothing in Cisco should depend or Carter or anyone else. Cisco should also not use any trick for personal enrichment of any employee.

Cisco has granted large stock options to some of its employees. Siomilarly Cisco has engaged in promoting favorite employees not based pon qualifications and performance. To create this kind of perception is wrong for a publicly traded company. Cisco is nations property and should not be used as a personal property. If Cisco is investigated fairly by NEC, a lot of things would surface up that are not considered acceptable orms of a publicly traded company.

If Cisco's margin improved at all, it is due to no substantial improvement in the product itself as claimed by the analysts.

Staging a crafty platform so that Cisco's are traded for higher prices is clearly wrong and is not in the best interest of our country.
Light_Path 12/4/2012 | 9:50:00 PM
re: Cisco Beats the Street, Ups Repurchase BobbyMax,

Nice message you little troll. Could you say the word "should" anymore in your message.

Things that are legal:

1. Buying back stock
2. Not relying on phone companies for your revenue
3. Having good margins b/c you can lower your costs and not giving in to price wars
4. Stating Pro Forma AND GAAP numbers
5. Having a honest, admired, and frugal CFO

One day you will give up your jealousy of Cisco. They make a good plan and then execute it.

Nortel, Lucent, and Ciena should try to do the same.

Managing a company in good times is easy. Doing the same in hard times is the sign of a good leader.
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