Cisco Tops Estimates After Customers Upgrade Networks (Update3)
By Rochelle Garner
Feb. 3 (Bloomberg) -- Cisco Systems Inc., the world’s biggest maker of networking equipment, topped analysts’ profit estimates and predicted an acceleration in sales growth as customers resumed projects they put off during the recession.
Second-quarter earnings, excluding costs such as stock- based compensation, rose to 40 cents a share, the San Jose, California-based company said today in a statement. Analysts in a Bloomberg survey had estimated 35 cents on average. Sales increased for the first time in a year.
Chief Executive Officer John Chambers heralded a new phase of economic recovery, citing a “dramatic improvement” in Cisco’s business in most areas. Corporate customers boosted spending to accommodate increasing amounts of video, messages and other data sent over their networks. Phone carriers, which account for about 35 percent of Cisco’s revenue, also stepped up equipment purchases at the end of 2009.
“Cisco appears well positioned to emerge stronger from the downturn,” said Bill Kreher, an analyst at Edward Jones in St. Louis. He recommends buying the shares, which he doesn’t own. “The company saw strength across most business areas, which we view positively. They purchased some nice assets in the downturn and that puts them in a strong position.”
‘Clear Indication’
Cisco expects third-quarter sales to rise 23 percent to 26 percent from a year earlier. That equates to revenue of at least $10 billion, topping the average analyst estimate of $9.49 billion.
Second-quarter net income rose 23 percent to $1.85 billion, or 32 cents a share, from $1.5 billion, or 26 cents, a year earlier. Sales climbed 8 percent to $9.82 billion in the period, which ended Jan. 23. Analysts had predicted $9.41 billion.
Cisco, based in San Jose, California, rose 81 cents, or 3.5 percent, to $23.88 in extended trading. The shares, which advanced 47 percent last year, closed at $23.07 on the Nasdaq Stock Market.
“Our outstanding Q2 results exceeded our expectations and we believe they provide a clear indication that we are entering the second phase of the economic recovery,” Chambers, 60, said in the statement.
Chambers has said he plans to be more aggressive this year, buying more companies and entering new markets. That will help Cisco grow faster than its more-cautious rivals as the economy improves, he has said.
Starent Deal
The company bought Starent Networks Corp. for about $2.9 billion last quarter, gaining gear that wireless carriers use to help route mobile traffic. Cisco ended the second quarter with $39.6 billion in cash, up from $35 billion at the end of fiscal 2009.
“They are making big bets by getting into new markets, and increasing the pace of acquisitions,” said Nikos Theodosopoulos, an analyst with UBS AG in New York. “They are certainly being aggressive for growth.”
Global data traffic probably will more than double every year through 2013, according to Cisco. The company aims to add technologies that boost Internet traffic, increasing demand for its routers and switches.
Investors view Cisco as a technology-industry bellwether because it dominates the market for routers and switches, products that direct the flow of data. Large companies account for most sales of switches, used to run corporate networks. Phone carriers and Internet-service providers mostly purchase routers, which are costlier.
In January, Goldman Sachs Group Inc. forecast worldwide spending on technology products will rise 5 percent this year, fueled primarily by countries in emerging markets. Technology spending in the U.S., Western Europe and Japan will advance 2 percent, Goldman Sachs estimated.
To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net
Last Updated: February 3, 2010 17:17 EST |
