Cisco loses stock gains on outlook
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 6:36 PM ET Nov. 6, 2002
SAN JOSE, Calif. (CBS.MW) -- Cisco Systems reported a better-than-expected quarterly profit Wednesday but forecast that sales will be flat to down 4 percent this quarter, sending its shares lower after hours.
"I think it's a macroeconomic issue rather than a Cisco-specific issue," said Aalok Shah, analyst with Pacific Crest Securities. "If you are worried about what they said, you should be worried about the entire stock market."
Indeed, technology stocks turned lower after Cisco announced its outlook for the second quarter. Nonetheless, Shah said Cisco performed well given the environment and that its results could have been worse.
Cisco (CSCO: news, chart) shares fell 2 percent to $12.69 on Island ECN. After Cisco announced first-quarter results but before it laid out second-quarter targets, shares rose as much as 5 percent.
"From an external perspective, our customers are more cautious and their visibility continues to contract," said Chief Executive John Chambers during a conference call, adding that his financial targets are on the cautious side.
Despite the concern, Technology Business Research's Bill Lesieur noted that Cisco's revenue base in networking equipment is intact and its margins have expanded while competitors are struggling to survive.
"Cisco's long-time competencies in managing both costs and expenses, while maintaining a strong balance sheet, is proving to be exceptionally valuable during the industry downturn," said Lesieur.
For the quarter ended in October, Cisco earned $618 million, or 8 cents a share, on revenue of $4.84 billion. Excluding a $412 million write-down of equity investments, Cisco earned $1 billion, or 14 cents a share, which is a penny better than analysts expected.
At the beginning of the quarter, Cisco said it expected sales to be flat or slightly higher than the $4.8 billion it reported during the fourth quarter. The company provided no bottom-line target.
During the same quarter last year, Cisco lost $268 million, or 4 cents a share, on sales of $4.45 billion. Excluding charges, Cisco earned 4 cents a share.
Product sales accounted for 83 percent of total revenue while service sales of $832 million accounted for the remainder of the revenue base.
Gross margins for the quarter rose to 69.3 percent compared with 67.7 percent in the previous quarter and 54 percent in the first quarter last year. Chief Financial Officer Larry Carter attributed the boost to lower component costs and a reduction in inventory provisions.
Headcount declined by 288 to 35,278.
For the second quarter, Cisco said its sales could be flat or down as much as 4 percent sequentially, which would result in sales as low as $4.6 billion.
Chambers said customers were more cautious during September as they became concerned about the direction of the economy and their own businesses. "Our revenue will grow only meaningfully as our customers' revenue and profits improve," he said.
Gross margins are expected to be 66 to 68 percent and operating expenses are targeted to fall slightly. As usual, Cisco did not provide a target for its earnings.
Analysts had expected earnings of 13 cents a share on sales of $4.9 billion, on average, according to Thomson First Call.
Chris Kraeuter is a reporter for CBS.MarketWatch.com in San Francisco. |
