Cisco Systems’ (Nasdaq: CSCO) quarterly profit that beat estimates as the world’s largest maker of computer-networking gear benefited from price reductions and surging Internet traffic.
The Silicon Valley company, which employs about 5,000 at its site in Research Triangle Park, reported a fiscal second-quarter profit of $3.1 billion, or 59 cents a share. That’s a 44 percent increase from the $2.1billion, or 40 cents a share that Cisco reported a year earlier. Revenue was $12.1 billion, a five percent increase compared to a year ago. The average analysts’ estimate for profit was 48 cents a share, according to data compiled by Bloomberg.
Chief Executive Officer John Chambers has eliminated jobs, shut businesses and reduced prices to fend off competition from Hewlett-Packard Co. and Juniper Networks Inc. To maintain margins, Cisco needs to expand into new networking products designed to help customers replace aging gear amid competition that lessens the need for Cisco’s switches and routers, according to Brian Marshall, an analyst at ISI Group in San Francisco.
Cisco shares increased in extended trading. The stock closed up less than 1 percent to $21.14 in New York, for a gain of 7.6 percent so far this year.
Cisco’s latest quarterly report provides further evidence that spending on technology gear is picking up despite persisting concerns about a still-shaky economy. Cisco’s quarterly performances and forecasts are widely regarded as a way to assess the state of the technology industry.
That’s because the San Jose, Calif., company cuts a broad swath while selling its routers, switches, software and services to corporate customers and government agencies around the world.
Cisco has maintained its dominant position in the sales of routers and switches, said Erik Suppiger, an analyst at JMP Securities LLC. The company has lost share in security, and cutbacks in government spending have also hampered growth, he said.
“Their core markets are a challenge for them in terms of volume growth, and they haven’t necessarily had great success in terms of expanding into new markets that can move the needle,” Suppiger said.
Chambers has said he plans to expand in software and technology services, and has stepped up acquisitions to bolster Cisco’s central business of selling routers and switches to large companies and telecommunications carriers.
Cisco agreed to buy Israel’s Intucell Ltd. for $475 million and San Francisco-based Meraki Inc. for $1.2 billion in recent months to gain technologies for managing wireless networks. In March of last year, Cisco agreed to buy NDS Group Ltd. for about $5 billion to tap demand for technologies that deliver and protect pay-TV content.
Cisco is also shedding units. Last month, the company said that it sold its Linksys home-router unit for an undisclosed sum, which followed earlier moves to exit consumer businesses such as the Flip video-camera unit.
The debt crisis in Europe has slowed Cisco’s attempts at a turnaround. The region made 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.
(Bloomberg News and The AP contributed to this report)
