Cisco's strong U.S. sales, popular Nexus product raise revenue

NEW YORK Thu May 15, 2014 5:33am IST

A visitor walks past a Cisco advertising panel as she looks at her mobile phone at the Mobile World Congress in Barcelona February 27, 2014. REUTERS/Albert Gea/Files

A visitor walks past a Cisco advertising panel as she looks at her mobile phone at the Mobile World Congress in Barcelona February 27, 2014.

Credit: Reuters/Albert Gea/Files

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NEW YORK (Reuters) - Network equipment maker Cisco Systems Inc posted a shallower-than-expected 5.5 percent drop in quarterly revenue, as recovering demand in regions like the United States and Northern Europe helped offset sluggish sales in emerging markets.

The company posted gross margins of 62.7 percent in its fiscal third quarter, up from 53.3. percent in the previous quarter and above guidance of 61 to 62 percent.

Cisco's key server business has grappled with competition from so-called software-defined networks (SDN) , which offer software that can run on cheap hardware. Lately it has been gaining some traction in that battle thanks to its Nexus 9000 switches, which can adapt to flows in workloads brought on by cloud computing, and big data.

"It is about as solid of a quarter as you can expect," said analyst Zeus Kerravalla at ZK research.

"Seeing gross margin get back up above 62 percent is certainly good news for investors and should help alleviate some of the concern that their business is being commoditized," he said.

Total U.S. product orders rose 7 percent from one year ago, with enterprise and commercial orders rising more than 10 percent. Order strength in northern Europe was up 4 percent year-over-year.

Yet in emerging markets, where Cisco faced increased competition, orders fell 7 percent, with Brazil down 27 percent and Russia down 28 percent.

Nexus 9000 grew to a user base of 175 customers, up from 20 customers last quarter.

"The traction we are seeing with application-centric solutions gives me confidence that we are leading the disruption of SDN," said Cisco's Chief Executive Officer John Chambers.

Chambers said the company's book-to-build ratio, the ratio of orders received to units shipped and billed, was "comfortably above one," indicating strong demand.

The company gave forecasts of earnings per share of 51 cents to 53 cents, and a gross margin of 62.7 percent for the fourth quarter.

Shares rose in after hours trading to $24.39 from a $22.80 close on the Nasdaq.

Cisco had a net profit of $2.2 billion in the fiscal third quarter, down from $2.5 billion in the year-ago quarter.

Non-GAAP earnings of 51 cents per share exceeded the consensus forecast of 48 cents.

The company increased its cash dividend in the third quarter to $0.19 per common share.

Cisco reported revenue of $11.5 billion, down from $12.2 billion a year earlier. Wall Street on average had expected $11.36 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Marina Lopes; Editing by Richard Chang and Cynthia Osterman)

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