Cisco's 4Q results, outlook top analyst views

August 10, 2011 - 6:15 PM

SAN FRANCISCO (AP) — Cisco Systems Inc. provided a small measure of comfort to the battered stock market late Wednesday with quarterly results that underscored the technology bellwether's resolve to improve its financial performance.

The numbers for the latest quarter weren't spectacular, but at least they didn't disappoint analysts. Cisco, the world's largest maker of computer-networking equipment, also predicted that revenue in the current quarter could rise as much as 4 percent, a growth rate that would be slightly better than what Wall Street had expected.

Those factors are particularly important at this volatile time, especially because Cisco is one of the 30 companies that make up the Dow Jones industrial average. That widely watched benchmark has plummeted 16 percent during the past three weeks amid concerns about unsustainable government debts in the U.S. and Europe and ongoing worries about the flagging recovery from the Great Recession.

Cisco shares surged $1.05, or 7.7 percent, to $14.99 in extended trading Wednesday after the company released its results and forecast.

The government's massive deficit it taking a toll on Cisco. The company's total revenue from government deals in the latest quarter fell 7 percent from last year, with the deepest decline occurring on the U.S. federal level.

Cisco CEO John Chambers told analysts in a conference call that the government spending slowdown will likely extend into next year. That shapes up as bad news for other large technology companies that sell their products and services to the government.

Cisco, which is based in San Jose, also has been facing other challenges as it expanded into other markets beyond its main business of making equipment that powers the Internet.

To fix the problem, Chambers has vowed to cut costs and focus more resources on areas likely to produce the biggest revenue growth.

In some of his first steps, Chambers shut down its Flip Video camcorder. Last month, Cisco laid out a plan to eliminate 6,500 jobs, or 9 percent of the Cisco's work force. Cisco is striving to reduce its expenses by $1 billion annually in the shake-up.

Chambers told analysts the reshuffling and trimming may continue for a few more years.

"It would be very easy to rest upon the changes that we've already made and continue to gradually evolve our company for the future," Chambers said. "That is clearly what we will not do. We will continue to accelerate and drive through the simplification process at an even faster pace."

Cisco absorbed a $772 million charge in its latest quarter to cover some of the severance costs from the job cutting. More charges will be spread over the next few quarters.

The company earned $1.2 billion, or 22 cents per share, in the fiscal fourth quarter, which ended in July. That represented a 36 percent drop from net income of $1.9 billion, or 33 cents per share, a year earlier.

If not for the severance charge, Cisco said it would have earned 40 cents per share. On that basis, Cisco topped the average earnings estimate of 38 cents per share among analysts surveyed by FactSet.

Revenue grew 3 percent from last year to $11.2 billion — about $300 million above analyst estimates.

Cisco expects its revenue for the current quarter ending in October to increase by 1 percent to 4 percent from the same year. That projection implied revenue of $10.86 billion to nearly $11.2 billion. Analysts had been expecting revenue for $10.94 billion.