Cisco sees slower growth in second quarter

Wed Nov 14, 2012 12:39pm IST

A Cisco office is pictured in San Diego, California November 12, 2012. REUTERS/Mike Blake

A Cisco office is pictured in San Diego, California November 12, 2012.

Credit: Reuters/Mike Blake

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REUTERS - Cisco Systems Inc (CSCO.O) reported first quarter results that beat estimates but expects flat earnings and slower revenue growth for the current quarter.

"We are modeling Europe to get worse before it gets better," Chief Executive John Chambers said on Tuesday, echoing his comments from the company's fourth-quarter earnings call in August.

However, he added that "we see signs of improvement in the U.S. in enterprise, service provider and commercial."

Still, Chamber said, it was too early to speak of a trend "though we are continuing to see what we like."

Cisco said it expects earnings per share, excluding items, of 47 cents to 48 cents in its fiscal second quarter, which runs until the end of January. A year earlier it reported EPS of 47 cents.

It also said it sees revenue growth in a range of 3.5 percent to 5.5 percent, compared with 11.6 percent growth in the second quarter of 2012.

Chambers said he would give a long-term outlook at the company's financial analyst day next month.

Analysts had been expecting a cautious outlook.

"Considering the sluggish macro environment it's good that they are expecting growth at all," said ZK Research analyst Zeus Kerravala.

He added that Cisco has been "pretty accurate" at predicting economic conditions.

In its first quarter, which ran until the end of October, Cisco surprised analysts with a solid beat, due to cost cuts and the company's broad product range.

First-quarter net income, excluding items, rose 10.6 percent to $2.6 billion, or 48 cents per share, compared with analysts' average estimate of 46 cents a share as compiled by Thomson Reuters I/B/E/S.

Revenue rose 6 percent from the year-ago quarter to $11.9 billion, compared with a Street view of $11.77 billion.

Cisco's shares rose 6.7 percent to $17.98 in after-hours trading.

Analysts applauded the company's cost discipline and welcomed solid results in a tough environment.

"Given concern about enterprise spending, the company seems to be bucking the trends," said Bill Kreher, senior technology analyst at Edward Jones.

"The bar was low but the company did exceed those expectations. The company appears to be using strong cost discipline in meeting their numbers."

Mizuho Securities analyst Joanna Makris said "at first blush these are good numbers in a bad macro (environment)."

"It's largely due to a product mix - a larger shift to routing - and cost cutting," adding that "this is better than expected. We have been thinking they would squeak by on the top line." (Reporting by Nicola Leske; additional reporting by Liana Baker and Jennifer Saba; Editing by Phil Berlowitz)

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