Cisco Tops Expectations As Firm Branches Out -- WSJ

By Don Clark and Nathan Becker 

Cisco Systems Inc. continued to battle weak technology spending in its latest quarter, but the Silicon Valley company's numbers showed progress in building businesses beyond networking gear.

The company said third-quarter net income declined nearly 4% while revenue slid 1% for the period ended in April. But Cisco's results came in better than analysts expected, as did its financial projections for the current quarter.

Cisco shares rose 6% in after-hours trading. As of Wednesday's close, the stock had fallen 5.2% in the past month.

The San Jose, Calif., company's results often reflect changes in technology spending patterns ahead of peers. Cisco said last quarter that customers appeared to be spooked by the stock market selloff in January.

In the latest quarter, Cisco's biggest businesses -- switching and routing systems -- continued to show the signs of tepid demand. Switching revenue fell 3%, while revenue in the company's routing business fell 5%.

Chuck Robbins, Cisco's chief executive, said customers tend to be spending mainly where the need for new hardware is urgent -- not upgrading gear that is working satisfactorily.

"We see customers spending where they need to spend," he said during a conference call. "There is still a fair amount of caution in the market."

But Cisco has moved into many other software and services businesses -- largely through acquisitions -- that help smooth out swings in corporate demand and generate recurring revenue that is a key corporate goal. Contributors include Cisco's business in videoconferencing and other collaboration offerings, its third-biggest revenue stream, where revenue climbed 10%. Revenue from security products and services rose 17%.

Dave Heger, an analyst at Edward Jones, said the decline in revenue from switching and routing was greater than expected and "a little bit concerning." But he said Cisco's overall results counteracted a recent sense of pessimism about the enterprise-technology sector.

"There may a sense of relief," Mr. Heger said.

Cisco, whose business in China endured a long slide that ended recently, said orders from the country increased 22%.

Overall for the third quarter ended April 30, Cisco reported earnings of $2.35 billion, or 46 cents a share, down from $2.44 billion, or 47 cents a share. Revenue declined to $12 billion from $12.14 billion, though it rose 3% excluding a business in home cable TV hardware sold last year.

Excluding items such as stock-based compensation, the company said per-share earnings came to 57 cents. Analysts on that basis had predicted 55 cents a share on revenue of $11.97 billion, according to Thomson Reuters.

For the fourth quarter, Cisco predicted adjusted per-share earnings of 59 cents to 61 cents. It said revenue excluding the former cable-related business would be flat to up 3%, a range with an indicated midpoint of $12.5 billion. Analysts had projected earnings per share on that basis of 58 cents on revenue of $12.42 billion.

Write to Nathan Becker at [e-mail]

(END) Dow Jones Newswires

May 19, 2016 02:49 ET (06:49 GMT)

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