Cisco Profit Down, But Chambers Sees Growth Ahead

Cisco's quarterly profit and revenue both saw double-digit declines year-over-year, but Chambers said that Cisco's investments in video, virtualization and collaboration would buoy the networking titan going forward.

He called video the "killer application" to driving collaboration and growth, and further touted Cisco's just-announced data center partnership with EMC and VMware as one of the most "important strategic coalitions to occur in the industry in the last decade."

For its first fiscal quarter ended Oct. 24, Cisco posted a profit of $1.79 billion, or 30 cents a share, which was down 19 percent from $2.2 billion, or 37 cents per share, from the first quarter a year ago.

Cisco posted revenue of $9.02 billion, a 13 percent decline from a year earlier.

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Those numbers still beat the estimates of analysts, who according to a Thomson Reuters survey had predicted 31 cents per share on revenue of $8.75 billion.

By region, revenue declined everywhere year-over-year except in Japan. Gross margins -- which overall were 65.3 percent -- improved everywhere, year-over-year, except in the U.S. and Canada. Overall product sales were down 17 percent from a year earlier, and services sales were up 7.4 percent.

Chambers said Cisco's financial results were "above or at the high end of" the company's expectations in every category.

Providing guidance for its fiscal second quarter, Chambers said to expect a year-over-year increase in revenue of between 1 percent and 4 percent and said second-quarter total gross margins would be up 64 percent to 65 percent.

"The market is evolving very close to our expectations," Chambers said on the company's earnings call, reiterating a point he made on Cisco's fourth-quarter earnings call in August that the third quarter of Cisco's 2009 fiscal year was the "bottom" and that its fourth quarter was the "tipping point" for recovery.

Among specific segments, Cisco said public sector was up in the mid-single digits, and that consumer was up year-over-year about 20 percent.

Chambers said Cisco was starting to see positive effects from the federal stimulus, and that Cisco's public-sector opportunity was especially prevalent in education, health care, public safety, energy and transportation. Broadband opportunity was also growing, he said.

On the acquisition front, on which Cisco has been especially active lately, Chambers used Cisco's recent acquisition of Starent Networks as an example of acquiring a smaller company that extends a Cisco capability, in that case mobile infrastructure. Cisco's rule of thumb for acquisitions and partnerships is to partner big-company-to-big-company, and acquire big-company-to-small-company, Chambers explained.

Regarding the potential $3 billion acquisition of videoconferencing company Tandberg -- potentially held up by group of shareholders representing 24 percent of Tandberg's stock -- Chambers said he "believe[s] we will get this transaction closed." He added that Cisco would "move in video in many areas."

Cisco also laid out how it views the future of cloud computing as it relates to networking and the data center.

"The key difference and key point that most people miss is that cloud will have both elements: on-premise and off-premise," said Cisco CTO Padmasree Warrior on the earnings call. "I think the important factor is how we help enterprises and service providers deal with the fact that we will now have applications and services consumed partly from on-premise and partly off-premise. The network obviously plays a key role in making this happen."

Chambers declined to provide any guidance on the adoption of Cisco's Unified Computing System (UCS), telling analysts he would address UCS directly on the company's next quarterly earnings call in February, but that initial results "look very solid."