Cisco Systems beat earnings forecasts in its most recent quarter, but much of the talk during the traditional earnings conference call centered on the future.
Is there a tech rebound in sight?
Does John Chambers see growth on the horizon?
“I am just a little more cautiously optimistic,” Cisco’s chief executive said. Based on what he has heard recently from CEOs around the world, Chambers hedged a little more on the future, adding that he was “a little more cautiously optimistic.”
And asked later about Cisco’s own forecast for a flat fourth quarter, be acknowledged: “My bias would be a little bit on the upside.”
So what’s the message Cisco, a huge bellwether of the networking/IT industry, is sending?
“We’re impressed that they had a penny of upside,” analyst Erik Suppiger of Pacific Growth Equities, told Reuters, referring to the 15-cent earnings announcement. “But there is no indication of a change in the market.”
Suppiger also told Dow Jones that Chambers’ remarks indicated “the recovery is not underway at this point.”
Reports hint at little rebound
Two new reports seem to indicate that a rebound isn’t going to be big, even if one occurs.
PricewaterhouseCooper’s “Trendsetter” survey found that CEOs of the fastest growing companies plan to restrain IT spending over the next 12 months. The firms are expecting growth averaging 16.4 percent but plan to increase IT spending only 9 percent.
Nearly 60 percent of those surveyed said spending wouldn’t be increased simply because they did not have “important areas or functions in need of IT upgrading or improvement.”
Companies also aren’t making plans to hire. The Information Technology Association says any recovery in 2003 will be what it called a “jobless” one.
Its survey of 400 hiring managers at IT and non-IT firms found that 67 percent of them believe hiring demand will remain the same or decline.
Last week at a conference in Las Vegas, Chambers said companies are not going to buy technology unless they have a pressing need.
“Technology for technology’s sake is not only on the back burner, it’s off the stove,” he said.
If technology will improve productivity, Chambers added, CEOs will buy. He also predicted that companies would begin buying technology before hiring additional workers.
Cisco reported sales of $4.62 billion in the third quarter, down slightly from $4.71 billion the previous quarter. The company had predicted up to a 3 percent decline.
The company did drive its margins higher, to a Cisco high of 70.8 percent, which Chambers said exceeded expectations. That, coupled with cost controls and other steps, helped Cisco report $987 million in profits vs. $729 million, or 10 cents a share, on $4.82 billion in the same quarter a year ago, even as price pressure led to more discounting.
Cisco (Nasdaq: CSCO) stock closed up 51 cents Tuesday, to $15.90, before the earnings were announced.