Cisco Capitalizes on Businesses Buying Expensive Networking Gear

The recently announced Cisco first fiscal quarter earnings beat analyst expectations. They are finally getting a grip of the networking market again, thanks to US businesses that are now re-investing on expensive networking gear as the economic unrest slowly brings to a standstill. Cisco has been unstable early this year and analysts have been doubtful of its recovery.
During the earnings call, Cisco reported an 18 percent increase in profit. Purchases from huge companies in the US, which increased by 9 percent from last year, constitutes the bulk of the returns. This somehow makes up for their slump in the European market which is currently a hotspot of economic drawback. The company has yet to convince the federal government to invest on networking gear as well.
"The U.S. has to lead the total globe out of this slowdown. It's not going to come from Europe. While we were all hopeful about emerging countries, they just aren't going to be strong enough," CEO John Chambers said.

For Q3, Cisco's income went up to $2.1 billion or 39 cents per share from $1.8 billion or 33 cent per share from same quarter last year. According to FactSet, if it were not for the one-time stock-based compensations, the company's earnings would have topped analyst expectations by 2 cents and have taken home 49 cents a share. Cisco also exceeded Wall Street's rather timid expectation by 5.5 percent and landed on $11.9 billion in net profits. The acquisition of NDS, a video technology company, also pulled Cisco's revenue down by 4 percent.

Cisco's flagship products routers and switchers saw a decline this quarter. The service segment, meanwhile, was quite lucrative with a 12 percent increase from the same quarter last year as customers avail Cisco's networking services along with their networking gear.

The sales numbers for the service provider line of products comes hardly as a surprise given the rapid size in the size, speed, and capabiltiies of today's networks. Companies and people are becoming more moble and demand more access to media via the cloud. Cisco, having a 70% market share on service provider hardware grows as a result of company's accomodating increasing demand.

Their new product categories, wireless network equipment and servers for data, had an enthusiastic market as well.

For the fourth quarter, the company expects their earnings to set down between 47 cents to 48 cents per share, while they predict their revenue to be somewhere between $11.9 billion to $12 billion which is pretty much what analysts are expecting of them as well. Cisco will be doing a major revamp so they aren't expecting much profit. But it will all be worth because the loss will lead to "improvement in the U.S. in enterprise, service provider and commercial," Chambers added.

Posted in: Economics