Mon Nov 5 7:42 PM ET 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 on 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.
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, the first time that has occurred this calendar year.
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. Chambers said last month he was ``very comfortable'' with Wall Street's estimates.
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.
``The trend line in our mind is clear -- upward and to the right,'' Chambers said of the long-term growth opportunities.
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.
Cisco increased its cash on hand to $19.1 billion from $18.5 billion at the end of the fourth quarter.
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 in the low single-digit percentage point range 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,
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.
Investors had wanted to know whether Cisco's 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, which allows a company to run its business with more predictability and ultimately more profitably, Chambers said.
``You are beginning to see a different behavior in the market that I would characterize by linearity, and hitting or exceeding expectations for the strong,'' he told Reuters.
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, which employed 37,546 people at the end of October, 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.
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18:09 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- On call, says it would characterize gross margins trend as flat to up slightly in its model... noted it saw normal competitive pricing in most segments with aggregation and access segments being a little more aggressive in Q1; saw discount percentage decrease on new orders in Q1... clarifies that its forecasting visibility for current qtr is not as good as it was for Q1... CSCO +0.86 at 18.76
17:50 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- Using the company's assumptions, we can put together a Q2 model as follows: revenues up 2.5% (company: flat-low single digits), gross margins of 54% (company: mid-50s), operating expenses down 1% (company: flat to slightly down), other income flat (company: flat), tax rate steady at 28% (company: 28%), share count +70 mln (company: +60-80 mln). Using those assumptions, Briefing.com comes up with a Jan qtr EPS estimate of $0.05 vs the current consensus of $0.03.
17:32 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- Cisco guides Q2 revenues higher; expects Q2 (Jan) revenues to be flat to up in the low single digits sequentially. If you assume this is 0-5% growth, that would be a range of $4.45-4.67 bln vs the current Multex consensus of $4.3 bln.
17:19 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- On call, provides Q4 geographic breakdown as % of total revenue: EMEA28%; U.S. 47%; Americas Intl. 6%; Asia-Pacific 11%; Japan 8%... says it has succeeded in reaching its $1 bln expense savings target and is now approaching $2 bln in expense savings on an annualized basis.
17:08 ET Cisco Systems (CSCO) 17.90 +0.64: -- Correction -- Deferred revenues rose to $3.5 bln in the Oct qtr from $3.2 bln in the prior qtr; we previously reported deferred revenues of $2.78 bln, but Cisco broke up the deferred revenue line into two separate balance sheet items, of which the $2.78 bln was only one.
17:06 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- On conference call, provides following sequential breakdown: routers -6%; switches +3%, access -31%; other +5%; services +10%; revenue adjustment -37%; revenue deferral (new category) -2%.... net inventories down $383 mln on a sequential basis to approximately $1.3 bln; inventory turns 5.5 vs 4.6 in Q4.
16:56 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- On conference call, Cisco says that book/bill ratio was greater than 1.0; says linearity of orders was good in Jun-Aug, experienced only a modest disruption after Sep 11, and then continued to be good in late Sep and October
16:42 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- Cisco's balance sheet continues to look solid; DSOs (days sales outstanding) fell to a very low 24 days from 31 day in the prior qtr.
16:31 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- Inventories were a relative bright spot in the CSCO report; inventories fell sequentially to $1.3 bln from $1.68 bln. It also appears that Cisco was able to make use of $290 mln in inventories that were previously written off.
16:27 ET Cisco Systems (CSCO) 17.90 +0.64: -- Update -- Cisco reported an Oct qtr pro forma profit of $0.04, two cents better than the consensus; revenues were $4.448 bln, up 3.5% sequentially and better than the $4.17 bln Multex consensus. |
