Despite slower sales, Cisco's fiscal Q2 earnings beats Street
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Research Triangle Park, N.C. — Networking giant Cisco Systems’ (NASDAQ: CSCO) fiscal second quarter earnings beat analyst estimates despite slowing sales that led to an 8 percent revenue slide compared to a year ago.
Excluding certain one-time items, Cisco’s earnings were 47 cents per share; revenue was $11.2 billion. On average, analysts polled by Thomson Reuters estimated Cisco would report earnings of 46 cents per share and revenue of $11.03 billion.
CEO John Chambers said that the revenue decline was expected, in the context of a spending slowdown, particularly in emerging markets. Declining sales in emerging markets and telecommunications led Cisco to lower its revenue outlook in December. But Chambers put the best spin on the results by emphasizing the work Cisco is doing to position itself for future growth. In particular, he cited opportunities presented by the “Internet of Everything,” or IoE which extends the network beyond computers and mobile devices to include smart appliances and even automobiles.
WRALTechWire coverage: In his own words: John Chambers touts Internet of Everyting
“The Internet of everything will encompass every technology transition we see today with the network at the center,” Chambers said on a conference call with analysts to discuss financial results. “The Internet of Everything has moved from an interesting concept to a business imperative.”
In Cisco’s fiscal second quarter the company announced a blueprint for creating a sustainable smart and connected city to fulfill Dubai’s Smart City effort. The company released a study estimating that the IoE could generate $4.6 trillion in value for public sector organizations over the next decade. Cisco has also allocated $100 million to invest in early stage IoE companies.
But in the nearer term Cisco’s sales outlook continues to look weak. The San Jose, Calif.-based company, which operates a large campus in Research Triangle Park, said that revenue will decline 6 percent to 8 percent in the current period ending in April. That indicates sales of $11.2 billion to $11.5 billion, while analysts are projecting $11.3 billion on average, according to data compiled by Bloomberg.
Growth at the world’s biggest maker of network routers and switches is being hurt by a slowdown in sales outside the U.S. and increased competition from Huawei Technologies Co., Juniper Networks Inc. and Hewlett-Packard Co. In addition, Google Inc. and other Internet companies are developing their own in-house networking switches specially tailored to their needs, reducing demand for Cisco products.
“There’s a concern that emerging markets aren’t going to come back, or that their position in service providers will continue to be under pressure,” said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.
The shares fell as much as 5.1 percent to $21.69 in extended trading. The stock advanced less than 1 percent to $22.85 at the close in New York, leaving them up 9 percent this year.
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