Cisco Systems Inc. (Nasdaq: CSCO) is starting to show signs of a real recovery, based on its fiscal third-quarter results released today (see
Cisco Earnings Up in Q3).
Despite beating most consensus estimates for the quarter, however, CEO John Chambers kept the mood on the company's conference call quite "cautious." Cisco after-hours stock price may be reflecting that, as it's trading down $0.43 (1.93%) to $21.82 after the call.
In what has been an historically weak quarter for the company, Cisco saw sales growth in the "mid teens" for North American enterprise and commercial markets, the first solid growth it's seen in a long time, Chambers noted on the conference call.
Fiscal third-quarter revenues of $5.6 billion were a 4.1 percent increase from the previous quarter, exceeding Cisco's previous guidance (see
Waiting for Cisco Sunshine). That's a nice result, particularly in what is usually Cisco's weakest quarter, but it's offset a bit by the fact that the quarter was long -- 14 weeks rather than the usual 13.
Pro forma net income was $1.4 billion, or 19 cents per diluted share, following Cisco's pattern of beating analysts' estimates by a penny. Net income calculated under generally accepted accounting principles (GAAP) was $1.2 billion, or 17 cents per diluted share. In either case, net income was the highest Cisco has ever seen, Chambers said.
Gross margin was 68.8 percent, up from 68.5 percent, a possible sign that the market is improving. Cisco's book-to-bill ratio was "approximately 1," Chambers said. He didn't bother saying if that was above or below 1, but as many Cisco orders ship in the same quarter they're booked, the book-to-bill doesn't always reflect future revenues.
Chambers' guidance for the fiscal fourth quarter was for 3 to 5 percent sequential growth, or revenues of roughly $5.76 billion to $5.88 billion. The numbers aren't as conservative as they seem, considering that the third quarter included that extra week. "You're really talking 6 to 10 percent range in [what has been] a seasonally stronger quarter," he said.
Overall, his outlook for Cisco and the general economy was optimistic, but he said that customers are still cautious, reporting "IT budgets on average increasing for calendar 2004, although at a lower rate than we'd like to see."
Cisco even plans to continue hiring -- always a good thing. The company picked up 214 employees in the past quarter, bringing headcount to 34,307, and Chambers said he expects to add 1,000 more jobs during the rest of 2004, mostly in engineering and sales.
Chambers ducked a question regarding the fabled HFR, the next-generation core router. One analyst pointed to a May 25 Cisco event that's expected to be the official HFR launch, but Chambers wouldn't bite. "I'm not going to comment on future products," he said, although he did say the company is starting to "move on much faster cycles to market." (See
Cisco Sprints Ahead With HFR and
Sources: Cisco Building 'Son of HFR'.)
— Craig Matsumoto, Senior Editor,
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