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Investors Go Giddy Over Cisco's Q3

Shares of Cisco Systems Inc. were up US$2.60 (12%) to $23.81 in pre-market trading Thursday, despite a third-quarter earnings report that wasn't too spectacular. The reaction to plain-Jane results shows how little investors were expecting from Cisco. The company even gave a July-quarter forecast that was below analysts' expectations, writes Alex Henderson of Needham & Co., in a report issued Thursday morning. "The simple answer was conference call tone," Henderson writes. Cisco reported that U.S. enterprise business was strong and even saw a boost in sales to state and local governments. Cisco also claims to be doing well in the data center, where sales of its Unified Computing System (UCS) and Nexus products grew 35 percent compared with last year's third quarter. Not all of Cisco's news was stellar. Gross margins, which investors have worried about for a few years now, came in at 63 percent but are likely to fall back to 61 or 62 percent, Cisco said. But that could be a lowball, according to analyst Mark Sue of RBC Capital Markets. In his Thursday morning note, he writes that Cisco's gross margin could remain between 63 and 64 percent as software sales increase. For its third quarter, which ended April 27, Cisco reported revenues of $12.2 billion and net income of $2.7 billion, or 46 cents per share. In the same quarter a year ago, Cisco reported revenues of $11.6 billion and net income of $2.6 billion, or 40 cents per share. Non-GAAP earnings of 51 cents per share compared with the consensus forecast of 49 cents, according to Thomson Reuters. While this means Cisco "beat" earnings expectations, big companies like Cisco have the uncanny ability to beat the estimate by 1 or 2 cents every quarter, so there's no real surprise here. For its fourth quarter, which ends in July, Cisco is predicting revenues of $12.2 billion to $12.5 billion, representing growth of 4 to 7 percent over last year's fourth quarter. — Craig Matsumoto, Managing Editor, Light Reading
Digit 5/18/2013 | 10:58:29 PM
re: Investors Go Giddy Over Cisco's Q3 Giddy is a pretty strong word for anyone who has owned them for more than a few years. Great to see the move, and Cramer liked their forward looking prospects for anyone keeping score, but Cisco has a long way to go to get back to the greatness it once had in the North American service provider space.
Craig Matsumoto 5/17/2013 | 3:55:41 PM
re: Investors Go Giddy Over Cisco's Q3 Here's a theory...

Aruba announced earnings the same day as Cisco, and they weren't good. Part of the problem was sudden aggressiveness by Cisco in the enterprise Wi-fi sector.

George Notter of Jefferies & Co. thinks this is less a case of Cisco targeting Aruba and more a case of Cisco scrambling to make its quarter despite a bad macro-economy.

Most other companies report earnings 2 months after Cisco does. So Notter points out that if he's right, this might be the start of a trend.

More importantly, it would explain why Cisco made a quarter that many people (apparently) didn't expect them to make.
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