Cisco's profit tops estimates

Bloomberg NewsFebruary 13, 2013 

— Cisco Systems reported quarterly profit that beat estimates as the world’s largest maker of computer-networking gear benefited from price reductions and surging Internet traffic.

Fiscal second-quarter profit excluding some items was 51 cents a share on sales of $12.1 billion, the San Jose, Calif., company said Wednesday in a statement. That compares with analysts’ average estimate of 48 cents a share on sales of $12.1 billion, according to data compiled by Bloomberg.

CEO John Chambers has eliminated jobs, shut businesses and reduced prices to fend off competition from Hewlett-Packard and Juniper Networks. To maintain margins, Cisco needs to expand into new networking products designed to help customers replace aging gear amid competition that lessens the need for Cisco’s switches and routers, said Brian Marshall, an analyst at ISI Group in San Francisco.

“They have been doing a decent job in keeping the EPS up, so hats off to them there,” Marshall said. “I just have difficulty getting excited about the story long-term because ultimately what we’re dealing with is whether they can keep the margins up.”

The shares increased in extended trading. The stock closed up less than 1 percent to $21.14 in New York, for a gain of 7.6 percent so far this year.

Net income rose 44 percent to $3.14 billion, or 59 cents a share, from $2.18 billion, or 40 cents, a year earlier.

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

Cisco has maintained its dominant position in the sales of routers and switches, said Erik Suppiger, an analyst at JMP Securities. The company has lost share in security, and cutbacks in government spending have also hampered growth, he said.

Chambers has said he plans to expand in software and technology services, and has stepped up acquisitions to bolster Cisco’s central business of selling routers and switches to large companies and telecommunications carriers.

Cisco agreed to buy Israel’s Intucell for $475 million and San Francisco-based Meraki for $1.2 billion in recent months to gain technologies for managing wireless networks. In March of last year, Cisco agreed to buy NDS Group for about $5 billion to tap demand for technologies that deliver and protect pay-TV content.

Cisco is also shedding units. Last month, the company said that it sold its Linksys home-router unit for an undisclosed sum, which followed earlier moves to exit consumer businesses such as the Flip video-camera unit.

The debt crisis in Europe has slowed Cisco’s attempts at a turnaround. The region made up one-fourth 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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