Cisco earnings fall 21%, beat expectations

Thu, 05/07/2009 - 8:28am
Peter Svensson, AP Technology Writer

NEW YORK (AP) – Cisco Systems Inc. said Wednesday that earnings fell 21 percent in its latest quarter, but the profit comfortably beat Wall Street expectations amid signs that the market is stabilizing.

CEO John Chambers said customers are "finally seeing something reasonably solid underneath their feet," and the company itself has seen order rates possibly bottom out.

The world's largest maker of computer networking gear posted a profit of $1.3 billion, or 23 cents per share, for the fiscal third quarter, which ended April 25. That was down from $1.8 billion, or 29 cents per share, in the same quarter last year.

Excluding the cost of stock-based compensation and other items, Cisco's earnings were 30 cents per share, 5 cents above the average forecast of analysts polled by Thomson Reuters.

Sales for the San Jose, Calif.-based company fell 17 percent to $8.2 billion. Analysts had expected sales of $8.1 billion.

Chambers said he expects sales for the current quarter to be down 17 percent to 20 percent from a year earlier, which works out to a range of $8.3 billion to $8.6 billion. Analysts were on average expecting sales of $8.26 billion.

Chambers said that while orders in the third quarter were below those of a year ago, they didn't deteriorate from month to month, as they have for many quarters as the world economy has stuttered.

As a deliverer of capital-budget equipment, Cisco's orders have been hit hard in the economic downturn, but the company's high margins and enormous cash horde have let it power through relatively untouched.

Cisco reined in spending last fall but has avoided layoffs. A hiring freeze reduced employee head count by 760 people during the quarter, leaving it with 66,558 workers.

Bill Trussell, managing director of networking and information security at TheInfoPro, which surveys Cisco customers, said they report holding off on big projects. They're focusing their investments on things that provide an immediate return, like upgrades to support virtualization, a technology that lets one computer act like several, Trussell said.

Another area of resilient growth is videoconferencing, which can save on travel costs. A company that buys videoconferencing equipment also often needs to upgrade the data network to handle the traffic, benefiting Cisco again.

Chambers said videoconferencing orders were up 70 percent from a year earlier.

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