Cisco Systems (Nasdaq: CSCO), the biggest maker of computer networking equipment, reported quarterly profit that exceeded analysts’ estimates as price reductions helped spur sales and cost cuts kept margins intact.

In an interview with CNBC, Cisco Chairman and Chief Executive Officer John Chambers called the results “a very solid quarter in what is clearly a tough market.”

Profit excluding some costs was 48 cents a share in the first fiscal quarter, which ended Oct. 27, Cisco said in a statement today. That compares with analysts’ average estimate of 46 cents a share, according to data compiled by Bloomberg. Revenue rose 5.5 percent to $11.9 billion, compared with analysts’ average projection for $11.8 billion.

Chambers told CNBC that Cisco grew while “many of our peers are struggling.”

He also noted that Cisco’s performance topped the company’s own guidance with revenue growth at 6 percent compared to a forecast of 4 to 6 percent and earnings of 48 cents after a forecast of 45 to 47 cents.

Chambers boosted profit by cutting costs, shutting businesses and reducing prices to win back sales lost to Hewlett-Packard Co. and Arista Networks Inc. To maintain current margins, Cisco needs new networking tools to replace sales of older gear that is falling out of favor as customers turn to software that reduces the need for Cisco’s switches and routers, according to Brian Marshall, an analyst at ISI Group in San Francisco.

“They have longer-term issues,” Marshall, who has a neutral rating on Cisco stock, said in an interview. “Any large company like this can make small, limited pops in their financial model on a short-term basis, but they can’t change the long term.”

San Jose, California-based Cisco’s shares rose after earnings were announced. The stock declined less than 1 percent to $16.85 at the close in New York. The shares have fallen 6.8 percent this year.

“We delivered record results this quarter — with revenue growth of 6 percent and strong earnings per share growth — demonstrating our vision and strategy are working,” Chambers said in the earnings release. “Our innovation engine, operational discipline and on-going evolution are enabling us to differentiate in the market.

“Cisco is at the center of the major market transitions — cloud, mobility, video — and yet we believe the largest market transition lies ahead of us, as the Internet of Everything becomes a reality. Cisco has the unique ability to turn information that will flow across networks into new capabilities and richer experiences. The Internet of Everything will create unprecedented possibilities for businesses, individuals and countries, and Cisco is poised to lead and fully maximize the opportunities of this evolution.”

Weaker Demand

Net income rose 18 percent to $2.09 billion, or 39 cents a share, from $1.78 billion, or 33 cents, a year earlier.

A central issue Cisco is facing is how to maintain its level of profitability at a time when demand is weaker in key markets such as Europe and the U.S., while startups and established rivals pose a growing threat.

The company’s gross profit margin a decade ago was 69 percent of revenue. In the latest period it was 61 percent of revenue.
Cisco’s dominance is being challenged in networking by established vendors such as Hewlett-Packard, Juniper Networks Inc. and Huawei Technologies Co., and in related markets such as security by Palo Alto Networks Inc. and other smaller firms.

Chambers has cut 7,800 jobs over the past year, closed businesses such as the Flip video-camera unit and eliminated bureaucratic bottlenecks in a bid to focus Cisco’s resources on the company’s key networking businesses and speed decision- making.

Year-End Boost

The debt crisis in Europe has slowed Cisco’s attempts at a turnaround. The region makes up one fourth of sales in the 2012 fiscal year.

A shift toward “software-defined networking,” or using software to perform tasks now handled by pricey networking equipment, could pose a longer-term threat, potentially reducing Cisco’s sales.

Cisco’s cost cutting and the potential for increased spending by the U.S. government at the end of the year could help lift profitability, Alkesh Shah, an analyst at Buckingham Research Group in New York, wrote in a Nov. 7 note. Shah has a buy rating on the stock.
Cisco operates its largest campus outside its California headquarters in RTP.

[CISCO ARCHIVE: Check out 10 years of Cisco stories as reported in WRAL Tech Wire.]

(Bloomberg contributed to this report.)