Cisco profit exceeds estimates

Bloomberg NewsNovember 13, 2012 

Cisco Systems, the biggest maker of computer networking equipment, reported quarterly profit that exceeded analysts’ estimates as price reductions helped spur sales and cost cuts kept margins intact.

Profit excluding some costs was 48 cents a share in the first fiscal quarter, which ended Oct. 27, Cisco reported Tuesday. That compares with analysts’ average estimate of 46 cents a share, according to data compiled by Bloomberg. Revenue rose 5.5 percent to $11.9 billion, compared with analysts’ projections for $11.8 billion.

Cisco is one of the Triangle’s larger employers with more than 5,000 employees and contractors at its Research Triangle Park campus.

CEO John Chambers boosted profit by cutting costs, shutting businesses and reducing prices to win back sales lost to Hewlett-Packard and Arista Networks. Cisco’s pricing and job cuts appeared to drive earnings growth, pleasing some investors while highlighting concerns about the company’s ability to maintain profit margins, said Bill Kreher, an analyst at Edward Jones.

Shares of the California company are down 6.8 percent this year. Net income rose 18 percent to $2.09 billion, or 39 cents a share, from $1.78 billion, or 33 cents, a year earlier.

A central challenge Cisco has is how to maintain its level of profitability when demand is weaker in key markets such as Europe and the United States, while startups and established rivals are a growing threat.

The company’s gross profit margin a decade ago was 69 percent of revenue. In the latest period it was 61 percent of revenue.

Cisco’s dominance in networking is being challenged by established vendors such as Hewlett-Packard and Huawei Technologies and in related markets such as security by Palo Alto Networks and other smaller firms.

Chambers has cut 7,800 jobs over the past year, closed businesses such as the Flip video-camera unit and eliminated bureaucratic bottlenecks to focus Cisco’s resources on its key networking businesses and speed decision-making.

The debt crisis in Europe has slowed Cisco’s attempts at a turnaround. The region made up a quarter of sales in the 2012 fiscal year. A shift toward “software-defined networking,” or using software to perform tasks now handled by pricey networking equipment, could pose a longer-term threat, potentially reducing Cisco’s sales.

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