Home >companies >Cisco revenue tops estimates as new products fuel recovery

San Francisco: Cisco Systems Inc.’s profit and sales topped estimates after customers upgraded their networks, extending a recovery that began last year.

Fiscal second-quarter sales rose 7% to $11.9 billion, and profit excluding some items was 53 cents a share, the company said in a statement Wednesday. That topped analysts’ average projection for profit of 51 cents on sales of $11.8 billion. Revenue is also on track to match or exceed estimates in the period ending in April, Cisco said.

Chief executive officer John Chambers, who is planning to retire by the end of fiscal 2016, is rolling out machines that can handle skyrocketing Internet traffic, software-based networking tools and security services, while relying less on sales of specialized routers and switching equipment. “The momentum in the business feels extremely good" with improvement in all product categories across the globe, he said.

“They haven’t sounded that bullish in a long time—that’s the punchline for me," said Jason Noah Ader, an analyst at William Blair and Co. in Boston, who has the equivalent of a buy rating on the stock. “That was the best product growth we’ve seen in two and half years."

The shares of San Jose, California-based Cisco rose as much as 5.8% in extended trading, after declining 2% to $26.93 at the close in New York. The stock climbed 24% last year, compared with a gain of 11% in the Standard & Poor’s 500 Index.

Net income for the period ending 24 January rose to $2.4 billion from $1.43 billion a year earlier.

Business performance

Many of Cisco’s newer products are more profitable, and the 6,000 job cuts announced in August are starting to show up in the bottom line. Gross margin, a measure of profitability before operating costs, was 62% in the period, matching analysts’ projections.

Chambers, who is aiming to restore the company to growth after revenue declined in 2014 for the first time in five years, said he’s optimistic about Cisco’s ability to capture future sales, given signs of improvement across the business.

“We see this in every country and every segment of our business, even those that are challenging, like emerging markets," Chambers said on a conference call Wednesday.

New products

Sales in emerging countries rose 1% after declines in recent quarters. Orders from telecommunications companies fell 1%. While Chambers predicted that carriers’ spending on capital equipment would shrink in 2015, he hinted that Cisco had landed some large multiyear deals.

Almost every large carrier has announced plans to lower spending by building networks using sophisticated software running on industry-standard computers. They’re projected to spend $90 billion on such machines in the next three years, according to Technology Business Research Inc. Large Internet companies such as Google Inc. and Facebook Inc., formerly significant Cisco customers, also now design their own networking equipment.

In response, Cisco introduced a new specialized machine called Nexus 9000, designed to run software-defined networks more efficiently than basic gear. The equipment, when combined with a software product called the API Controller, lets companies adopt the technology without having to hire as many networking experts. The number of Nexus 9000 customers rose to 1,700 from 970 in the prior period, Cisco said.

Profit for the fiscal third quarter, which ends in April, will be 51 cents to 53 cents a share. Analysts are projecting, on average, profit of 52 cents.

“Things are lining up well from a product cycle perspective—a lot of Cisco’s products are ramping up at the same time," Ader said. Bloomberg

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