Cisco Stays Cautious

Cisco Systems Inc.'s (Nasdaq: CSCO) stock was trading down in the after-hours market as the company refused to let go of its cautious mood, despite a second quarter of sequentional revenue growth (see Cisco Q2 Profits Rise).

Growth remains in the single-digit realm, and Cisco CEO John Chambers admits the recovery's momentum is "still not as strong as we'd like." It's a coolly measured attitude compared to the euphoria surrounding the Juniper Networks Inc. (Nasdaq: JNPR) earnings call last month (see Juniper Confidently Carries Q4 and En Fuego!).

Chambers said customers are feeling confident that their businesses are recovering, but the optimism is tempered with an "unusual caution on both capex commitments and hiring."

The immediate future won't necessarily see Cisco's numbers skyrocket, either. Cisco is predicting revenue growth of only 1 percent to 3 percent in the current quarter. But that's not too bad, considering the April quarter tends to be Cisco's toughest. At the high end, that would mean revenues of just more than $5.5 billion for the current quarter.

For its second fiscal quarter ended Jan. 24, Cisco reported sales of $5.4 billion and pro forma net income of $1.3 billion, or 18 cents per share. For the same quarter a year ago, Cisco reported sales of $4.7 billion and net income of $991 million, or 14 cents per share (see Cisco Q2 Profits Rise).

Analysts had expected profits of 17 cents per share on revenues of $5.3 billion, according to Reuters Research. That itself was an increase from Cisco's November guidance of $5.15 billion to $5.25 billion.

Net income, according to generally accepted accounting principles (GAAP), was $724 million, or 10 cents per share. Under GAAP rules, Cisco must account for the pending Andiamo spin-in as if Andiamo had been inside Cisco from its inception, in April 2001 (see Cisco Buys Andiamo).

So why the gloom in the after-hours market? Well, Wall Street was most likely looking for some blowout numbers and signs that growth would accelerate. In addtion, the bean-counters may have seen a couple of warning signs in the numbers.

Cisco saw gross margins dropping, to 68.5 percent from 68.7 percent the previous quarter, and its book-to-bill ratio -- the number of future orders compared with those already billed -- stood below 1.0, indicating sales aren't increasing.

Cisco's Days Sales Outstanding (DSOs), a measure of the sales cycle, lengthened considerably to 34 days, compared with 26 days in the prior quarter.

But Cisco did have a few perky bits of news from the quarter.
  • High-end routers did particularly well. Revenues and bookings for the 10000 series were up 100 percent from last quarter, while revenues and bookings for the 12000 series were up 50 percent year-over-year, Chambers said. He admitted that high-end revenues tend to be lumpy from quarter to quarter.
  • Storage, after a "slow start," broke through, Chambers said. Revenues of $40 million were up 120 percent from the previous quarter.
  • Revenues from Linksys, Cisco's wireless LAN play, grew 39 percent to $165 million, aided by the holiday market.
Cisco stock closed up 21 cents at $26.41 today. The stock hit a three-year high of $29.39 recently. In trading after hours, it was down $1.16 (4.39%) to $25.25.

— Craig Matsumoto, Senior Editor, Light Reading

echo2 12/5/2012 | 2:31:13 AM
re: Cisco Stays Cautious My options are going to make me rich!

BlueWater66 12/5/2012 | 2:31:01 AM
re: Cisco Stays Cautious "High-end routers did particularly well"

Over the last few months, the estimates on this site for the customer's reception of the HFR has been very poor. I did not doubt those comments. But, I wander if that segment is seeing some signs of life. Maybe the HFR will have a home? Might also explain new development dollars rumored to be focused on a beefed up T640 true multi-shelf system at Juniper???
truelight 12/5/2012 | 2:30:54 AM
re: Cisco Stays Cautious I wish the bubble was back but I think not.

The economic growth of CISCO et al would indicate a slow down. The position of CISCO growth appears to favor the end consumer. This will proove to be more difficult to compete in this space in coming years due to the influence of the Eastern manufactures as they increase theri global brand awareness.

Given the relatively "free" global transfer of IP and technology the once strong Western barriers to entry are under pressure. We face some challenging technology times ahead of us - less we innovate more.


green 12/5/2012 | 2:30:45 AM
re: Cisco Stays Cautious cisco earned 700+ million (net income) in this quater but cash and cash equivalents went down by 100 million from last quater. how is this possible ? did they take a 800 million loss in investments ?
dash_riprock 12/5/2012 | 2:30:37 AM
re: Cisco Stays Cautious High-end routers did particularly well

Its got to be in Asia most probably Japan or maybe Korea/China
Its certainly not happening in North America
NTT is spending $5 bill alone this year on communications gear and while $5 billion is pocket change compared to what North American carriers where shelling out in 99 its better than the $0 they are spending now.

the danger is it might turn out to be a one shot deal. With current traffic growth rates you won't be upgrading OC-192 networks every 18 months.
I have a feeling OC-192 routers are going to stay "high end" well into 2005.

neveragain 12/5/2012 | 2:30:36 AM
re: Cisco Stays Cautious > cisco earned 700+ million (net income) in this
> quater but cash and cash equivalents went down
> by 100 million from last quater. how is this
> possible ? did they take a 800 million loss in
> investments ?

Cisco bought back some 2 billion dollars worth of
stock in the past quarter. That is probably the

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