Cisco Results Suggest Bottom at Hand
By Ben Klayman
CHICAGO (Reuters) - Cisco Systems
Inc.'s (Nasdaq:CSCO - news) fiscal
first-quarter profits before one-time items
tumbled 76 percent Monday amid a
continuing slump in high-tech spending,
but the data-networking bellwether's sales
did rise from the prior quarter, suggesting
the worst may be behind the sector.
``Given the very challenging economic and
capital spending environment, we were
pleased to deliver a solid quarter with good order linearity,
sequential revenue growth and profitable market share gains,''
President and Chief Executive John Chambers said in a statement.
The San Jose, California-based company said earnings before a
number of one-time items fell to $332 million, or 4 cents a share,
from $1.4 billion, or 18 cents a share, in the same period last year.
Sales for the quarter ending Oct. 31 fell 32 percent to $4.45 billion
from $6.52 billion last year, but topped Wall Street's and its own
expectations. They also rose from the previous quarter's $4.3
billion.
Analysts had expected Cisco to earn 2 cents a share, with a range
of 1 cent to 3 cents, according to Thomson Financial/First Call,
which tracks such data.
Analysts had forecast first-quarter sales of $4.17 billion, while the
company had said in August that sales would be flat to down 5
percent from the fourth quarter.
``We were especially pleased with the size of the market share
gains when compared to our industry peers who on average
reported sequential revenue decreases in the high teens,''
Chambers said.
Cisco's stock, which closed up 64 cents, or 3.7 percent, at $17.90
on Nasdaq before the results were announced, rose to $18.40 in
after-hours trading.
Analysts and investors lauded the stronger-than-expected
results. ``The quarter was clearly better than expected,'' said UBS
Warburg analyst Nikos Theodosopoulos, citing improved
revenues, gross margin, lower operating expenses and a stronger
balance sheet.
SECOND-QUARTER SALES TO BE 'FLAT TO SLIGHTLY UP'
Chambers said on a conference call with analysts that he expects
fiscal second-quarter sales to be unchanged to up slightly from
the $4.45 billion in the first period. That said, Chambers cautioned
that demand in the telecommunications and data-networking
industries was hard to forecast right now,
Chief Financial Officer Larry Carter said that by ``flat to slightly up,''
the company means ``very low single-digit (percentage) growth.
Analysts now forecast Cisco to have second-quarter sales of $3.8
billion to $4.6 billion, with the mean at $4.25 billion, according to
First Call. Per-share results are forecast at a 3-cent profit, with a
range of a 1-cent loss to a 5-cent gain.
Some analysts and investors said Cisco's strong results and its
second-quarter guidance pointed to a bottom in the spending
slowdown.
``We're seeing a bottoming out, but I'm not ready to call it a bottom
yet,'' said Steve Mygrant, portfolio co-manager of the Fifth Third
Technology Fund, which owns shares of Cisco. ``I didn't hear
anything that caused me a lot of concern.''
He added he will increase his fiscal 2002 earnings estimate for the
company to 21 cents a share from 16 cents.
Chambers said the Sept. 11 attacks hurt sales by about 2 percent
in the first quarter, and added that second-quarter sales will be
about 5 percent less than what the company had been estimating
before Sept. 11.
Since the beginning of the year, the stock has outperformed its
peers in the American Stock Exchange Networking (^NWX -
news) index by about 19 percent.
Chambers said last month he was ``very comfortable'' with Wall
Street's estimates.
Investors had wanted to know whether orders had stabilized since
the Sept. 11 airplane attacks, something to which Chambers
alluded last month when he said orders were ''remarkably linear''
from June through September. Linearity refers to the smoothness
of orders coming in to a company.
Including the one-time items and in accordance with generally
accepted accounting principles, the company posted a loss in the
quarter of $268 million, or 4 cents a share, compared with a net
income last year of $798 million, or 11 cents a share.
The results included a noncash $858 million impairment charge on
certain investments, about $189 million for two acquisitions and a
$37 million one-time charge, or about 1 cent a share after taxes,
for a write-off of in-process research and development.
CISCO COMPETITORS FARING WORSE
While capital spending among telephone carriers and corporations
has been weak -- hurting larger players like Canadian telecom
equipment giant Nortel Networks Corp. (NYSE:NT - news) (NT.TO)
-- smaller networking firms like rival Juniper Networks Inc.
(Nasdaq:JNPR - news) and Riverstone Networks Inc.
(Nasdaq:RSTN - news) have provided hope with strong results or
forecasts of growth.
Last month, Nortel posted a $3.5 billion third-quarter loss, and
Lucent Technologies Inc.'s (NYSE:LU - news) $8.8 billion
fourth-quarter loss was its largest-ever loss in a three-month
period and was due largely to restructuring charges.
Also last month, Juniper posted a $29.7 million third-quarter net
loss, but surprised and encouraged analysts with operating results
that held steady from the previous quarter. Riverstone forecast
revenue growth next quarter of 8 percent to 10 percent.
Cisco also said it had disposed of $834 million of excess inventory
during the quarter, making progress on purging itself of $2.2 billion
in excessive parts and components it is writing off due to weak
demand. |
