Cisco third-quarter sales top estimates

Bloomberg NewsMay 14, 2014 

Cisco Systems gave a forecast for fourth-quarter revenue that topped analysts’ estimates as orders in the U.S. climb on demand for networking machines to handle data traffic, making up for weaker emerging-market sales.

Revenue in the current period through July will be $12 billion to $12.3 billion, based on the company’s forecast for a decline of 1 percent to 3 percent from a year earlier. Analysts were projecting, on average, revenue of $11.8 billion.

Companies are upgrading their networks to accommodate more information being generated by mobile devices and bandwidth-hogging applications such as Internet video, fueling sales of routers and switches. That’s making up for weaker demand as companies build their own networking equipment, using software to buy fewer machines. John Chambers, chief executive officer of Cisco for 19 years, is seeking to turn around the company before leaving it in the hands of a successor.

“The industry has been doing a lot of work to become less reliant on Cisco,” said Matt Robison, an analyst at Wunderlich Securities in San Francisco who has a hold rating on the stock. “It’s the innovator’s dilemma: You’re successful in developing a market, and others join the market.”

The shares of Cisco rose as much as 8.1 percent in extended trading. The stock declined less than 1 percent to $22.81 at the close of trading Wednesday, leaving it up 1.7 percent so far this year, compared with a gain of 2.2 percent in the Standard & Poor’s 500 Index.

Revenue in the fiscal third quarter, which ended April 26, declined 5.5 percent to $11.5 billion, the company said in a statement today. That beat the average analyst estimate of $11.4 billion, according to data compiled by Bloomberg. Profit, excluding items, was 51 cents a share, versus a projection of 48 cents.

The San Jose, Calif.-based company is facing slowing growth for its market-leading routers and switches as companies replace legacy network hardware with software that performs many of the same tasks. The trend, called software-defined networking, has been embraced by companies including Google and Facebook.

Net income in the third quarter fell to $2.18 billion, or 42 cents a share, from $2.48 billion, or 46 cents, a year earlier.

Cisco’s orders in the U.S. rose 7 percent, while orders in emerging markets fell 7 percent, led by declines in Russia and Brazil, Chambers said on a conference call.

Fiscal fourth-quarter profit, excluding stock-based compensation, amortization and other items, will be 51 cents to 53 cents a share, compared with analysts’ average projection of 51 cents.

Corporate restructuring

Cisco has exited consumer businesses, cut staff and restructured its management in the past three years. The company has come under increased pressure from rivals including Huawei Technologies Co. and Juniper Networks in its core businesses, while newer competitors such as Palo Alto Networks and FireEye take share in growing markets such as computer and network security.

Cisco’s moves have included killing its Flip video-camera unit, selling its Linksys home-router division and reining in a council-style management structure that was blamed for alienating employees and creating a slow-moving bureaucracy. Cisco said on May 1 that it was discontinuing its WebEx Social service and replacing it with a competing product from Jive Software, a concession that Cisco’s collaboration software for businesses has lagged rivals’ offerings.

Chambers has lowered investors’ expectations. In December, the company reduced its forecast for average sales growth to 3 percent to 6 percent in the next three to five years, down from an earlier projection for a 5 percent to 7 percent rise.

Cisco said in August that it was cutting 4,000 jobs, or about 5 percent of its workforce, bringing to 12,300 the number of positions Cisco has eliminated over the past two years.

Cisco’s campus in Research Triangle Park houses more than 5,000 employees and contractors.

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