Tags: Cisco | profit | price | growth

Cisco’s Profit Tops Estimates as Price Reductions Bolster Growth

Wednesday, 13 Feb 2013 04:51 PM


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Cisco Systems Inc. reported quarterly profit that beat estimates as the world’s largest maker of computer-networking gear benefited from price reductions and surging Internet traffic.

Fiscal second-quarter profit excluding some items was 51 cents a share on sales of $12.1 billion, the San Jose, California-based company said Wednesday in a statement. That compares with analysts’ average estimate of 48 cents a share on sales of $12.1 billion, according to data compiled by Bloomberg.

Chief Executive Officer John Chambers has eliminated jobs, shut businesses and reduced prices to fend off competition from Hewlett-Packard Co. and Juniper Networks Inc. To maintain margins, Cisco needs to expand into new networking products designed to help customers replace aging gear amid competition that lessens the need for Cisco’s switches and routers, according to Brian Marshall, an analyst at ISI Group in San Francisco.

“They have been doing a decent job in keeping the EPS up - - so hats off to them there,” Marshall said in an interview. “I just have difficulty getting excited about the story long- term because ultimately what we’re dealing with is whether they can keep the margins up.”

Cisco shares closed up less than 1 percent to $21.14 in New York, for a gain of 7.6 percent so far this year.

Gross Margin

Net income rose 44 percent to $3.14 billion, or 59 cents a share, from $2.18 billion, or 40 cents, a year earlier.

Cisco has maintained its dominant position in the sales of routers and switches, said Erik Suppiger, an analyst at JMP Securities LLC. The company has lost share in security, and cutbacks in government spending have also hampered growth, he said.

“Their core markets are a challenge for them in terms of volume growth, and they haven’t necessarily had great success in terms of expanding into new markets that can move the needle,” Suppiger said.

Chambers has said he plans to expand in software and technology services, and has stepped up acquisitions to bolster Cisco’s central business of selling routers and switches to large companies and telecommunications carriers.

Recent Acquisitions

Cisco agreed to buy Israel’s Intucell Ltd. for $475 million and San Francisco-based Meraki Inc. for $1.2 billion in recent months to gain technologies for managing wireless networks. In March of last year, Cisco agreed to buy NDS Group Ltd. for about $5 billion to tap demand for technologies that deliver and protect pay-TV content.

Cisco is also shedding units. Last month, the company said that it sold its Linksys home-router unit for an undisclosed sum, which followed earlier moves to exit consumer businesses such as the Flip video-camera unit.

The debt crisis in Europe has slowed Cisco’s attempts at a turnaround. The region made up one-fourth of sales in the 2012 fiscal year. A shift toward “software-defined networking,” or using software to perform tasks now handled by pricey networking equipment, could pose a longer-term threat, potentially reducing Cisco’s sales.

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