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Cisco 3Q Net Up 20%; Weak 4Q View Sends Shares Lower

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05/10/2012 | 01:33am CEST

--Global economy worries and a cautious tone about IT spending environment leads to muted fourth-quarter outlook

--Cisco's fourth-quarter view comes under analyst expectations, sending shares lower after hours

--Muted view comes roughly two weeks after rivals Juniper Networks and Huawei issued weaker profit reports

(Adds CFO's comments in the eighth through 10th paragraphs.)

   By John Kell 

Cisco Systems Inc.'s (>> Cisco Systems, Inc.) fiscal third-quarter earnings jumped 20% on higher revenue and margins, though the network-equipment maker struck a cautious tone about the information-technology spending environment.

Worries about Europe and the strength of the global economy, public-sector spending pressures, longer sales cycles, and some smaller deal sizes from enterprise customers led Cisco to offer a downbeat outlook for the current quarter.

Shares were off 8.4% to $17.20 in after-hours trading, pushing Cisco into the red for 2012. As the world's dominant maker of networking devices that support Internet traffic, Cisco is often seen as a bellwether of companies' technology spending plans.

Chief Executive John Chambers said IT spending projections have been revised lower in recent months as worries in Europe and customer conservatism has gotten worse, though he said networking should do better than the industry as a whole.

Chambers said many of Cisco's customers say their plans are to spend more in the back half of the year, though in the very next breath they say they intend to wait for more clarity in Europe and want to see what government policies will be enacted.

Even in that difficult operating environment, Chambers said he believed data would show Cisco is gaining market share.

For the fiscal fourth quarter, Cisco projected adjusted earnings to range between 44 cents to 46 cents a share on revenue growth of 2% to 5% from prior-year levels, below the 49-cent profit and 7% top-line growth projected by analysts surveyed by Thomson Reuters.

Chief Financial Officer Frank Calderoni told Dow Jones Newswires the current-quarter outlook was based on what Cisco was hearing from customers, IT industry trends and an overall conservative spending outlook.

Cisco is "only reacting right now with the information we have in front of us," he said, adding it is hard to ascertain the long-term climate. Cisco is mainly focused on areas in which it can execute in a tight spending environment, he said.

While data center and wireless are among the businesses that remain top growth prospects, Calderoni said the switching business--which contributes nearly a third of the top line and is the company's largest segment--has seen progress of late as Cisco offers new products and as customers transition from 1 gigabit to 10 gigabit switches. That unit's revenue climbed 5% to $3.64 billion in the latest quarter.

Still, Cisco's muted view comes roughly two weeks after rivals Juniper Networks Inc. (JNPR) and closely held Huawei Technologies Co. issued weaker profit reports. Weaker sales of routers and other hardware dragged down on Juniper's first-quarter bottom line, while Huawei's 2011 profit slumped due to a stronger Chinese currency and as the company spent more to keep up with a competitive mobile electronics market.

On a positive note, Cisco has now reported two consecutive quarters of improved earnings after a yearlong streak of year-over-year profit declines as the company is in the midst of a turnaround after restructuring last year to focus on core product areas such as routing and switching gear that shuttle data between computers. Cisco has said it is benefiting from telecommunications and other companies' need for more robust networks to support mobile and cloud computing.

For the quarter ended April 28, Cisco posted a profit of $2.17 billion, or 40 cents a share, up from $1.81 billion, or 33 cents a share, a year earlier. Excluding stock-based compensation, restructuring-related impacts and other items, per-share earnings were up to 48 cents from 42 cents. Revenue rose 6.6% to $11.59 billion amid particularly strong demand in the data center, wireless and services segments.

The company's February forecast called for earnings between 45 cents and 47 cents a share and revenue growth of 5% to 7%.

Gross margin widened to 61.9% from 61.3%.

The company's product segment, its biggest top-line contributor, saw revenue rise 5% while its services segment's revenue increased 13%.

Regionally, top-line growth was strongest in the Asia-Pacific, Japan and China markets, up 24%, while the Americas grew 3.2% and Europe, the Middle East and Africa increased 4.6%.

Cisco's third-quarter orders climbed 4%, helped by strong demand from commercial, service provider and public-sector customers, easily offsetting a slim decline from enterprise clients.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

--Nathalie Tadena contributed to this article.

Stocks mentioned in the article : Cisco Systems, Inc.
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Financials ($)
Sales 2017 49 801 M
EBIT 2017 15 232 M
Net income 2017 10 455 M
Finance 2017 2 257 M
Yield 2017 3,47%
P/E ratio 2017 15,03
P/E ratio 2018 13,80
EV / Sales 2017 2,99x
EV / Sales 2018 3,01x
Capitalization 151 183 M
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Number of Analysts 35
Average target price 33,3 $
Spread / Average Target 10%
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Charles H. Robbins Chief Executive Officer & Director
John T. Chambers Executive Chairman
Rebecca J. Jacoby Chief Operating Officer & Senior Vice President
Kelly A. Kramer Chief Financial Officer & Executive Vice President
Joel Bion Senior VP-Research & Advanced Development
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