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Cisco’s earnings fall 46% in Q4, beat expectations

Thu, 08/06/2009 - 8:30am
Peter Svensson, AP Technology Writer

NEW YORK (AP) – Cisco Systems Inc. said earnings fell 46 percent in its latest quarter, but the profit beat Wall Street expectations and the company said the quarter may have been the bottom of the recession-related downturn.

"We saw a number of positive signs this quarter in the economy and in our business," CEO John Chambers said. He added that if order trends keep improving, there's a good chance the latest quarter was a "tipping point."

He said he expects a slight increase in revenue in the current quarter compared with the just-ended one.

As the world's largest maker of computer networking gear, Cisco has seen sales hit hard as clients delayed investments and capital improvements. However, good profit margins and a large pile of cash have helped the company ride out the downturn.

The San Jose, Calif.-based company posted a profit of $1.1 billion, or 19 cents per share, for the fiscal fourth quarter, which ended July 25. That was down from $2 billion, or 33 cents per share, in the same quarter last year.

Sales fell 18 percent to $8.5 billion but rose 4.6 percent from the previous quarter. Chambers said month-to-month sales changes were starting to return to normal seasonal patterns, leaving behind the precipitous slide that started in October.

Excluding the cost of stock-based compensation and other items, Cisco's earnings were 31 cents per share. Analysts polled by Thomson Reuters were expecting earnings of 29 cents per share on $8.5 billion in revenue.

For the current quarter, Chambers said he expects a revenue drop of 15 percent to 17 percent from a year ago, or an increase of 1 percent to 3 percent from the last quarter. That implies revenue of $8.55 billion to $8.76 billion. Analysts had been forecasting $8.59 billion in revenue.

Chambers didn't give an earnings forecast but said he expects the company's gross margin to fall to 64 percent in the current quarter, from 65.3 percent for the last quarter, as the company moves into more new markets with lower margins. Cisco is pushing into selling servers for data centers and has just bought Pure Digital, maker of the popular Flip Video camera.

Cisco shares fell 70 cents, or 3.2 percent, to $21.47 after Chambers announced his forecast, after initially rising on the results. In regular trading before the results were announced, shares closed down 29 cents, or 1.3 percent, at $22.15. Cisco's stock became part of the Dow Jones Industrial Average during the past quarter, replacing General Motors Corp.

Erik Suppiger, an analyst at Signal Hill Capital Group, said investors were probably looking for slightly better revenue from Cisco for the latest quarter but said the results were generally good. He noted that Cisco warned of a decline in margins one quarter ago, and it didn't happen, despite some discounting.

Chambers said the company is finished with a belt-tightening program that has led to layoffs of just above 2,000 employees in the last two quarters, slightly more than the company had advertised. It ended the quarter with 65,545 workers. The company is now fully focused on growth, the CEO said.

For the full fiscal year, Cisco earned $6.1 billion on $36.1 billion in sales, compared with $8.1 billion on sales of $39.5 billion in the previous fiscal year.

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