Cisco Reports Gains In 3Q Earnings, Revenue; Predicts Flat 4Q

Cisco Systems

For the quarter ended April 27, Cisco reported $4.8 billion in sales, compared with $4.7 billion in the same quarter last year. Net income, including charges and other items, was $729 million, or 10 cents per share, compared with a loss of $2.7 billion, or 37 cents per share a year ago. Pro forma net income was $838 million, or 11 cents per share, compared with pro forma net income of $230 million, or 3 cents per share, a year ago. Wall Street analysts had been expecting earnings of 9 cents per share, according to First Call/Thomson Financial.

"What a difference a year makes," Cisco President and CEO John Chambers said during a conference call to discuss the results. "Overall, we were very pleased. While we obviously still have a ways to go, it was nice to see revenue grow year-over-year again even if it was a small amount."

Looking ahead, Cisco executives predicted the fourth quarter would be flat, or up slightly. "I feel better about going into the fourth quarter [than going into the third quarter, but still not great," Chambers said. Cisco is well-positioned for whenever the inevitable upturn occurs and continues to budget conservatively, he added.

In the most recent quarter, Chamber said the U.S. enterprise business was flat, but added that could be interpreted as a positive based on past seasonal patterns. Federal government business increased, but state and local government business was challenging, Chambers said.

Vertical markets are showing signs of growth include retail, education and retail banking, while markets showing declining revenue or profit include energy, high tech and investment banking, according to Chambers.

Chambers highlighted Cisco's improvement in gross margins, which came in at 63.1 percent in the most recent quarter, better than the company's goal, and continuing a trend of increases over each of the previous four quarters. Inventory turns also improved in each of the past four quarters, to 7.5 in the third quarter, in the middle of Cisco's target range, Chambers said.

Routers accounted for 30 percent of Cisco's revenue, compared with 31 percent in the previous quarter, while switches accounted for 40 percent of revenue, compared with 39 percent last quarter. Access products were unchanged at 5 percent of revenue, while other product revenue was also unchanged at 8 percent. Services accounted for 17 percent of revenue, unchanged from last quarter.