Tags: Cisco | Profit | Tech | Spending

Cisco's Strong Profit Bodes Well for Tech Spending

Wednesday, 15 May 2013 05:53 PM

Cisco Systems Inc. posted a higher than expected quarterly profit, suggesting that the network equipment maker's customers are spending more on technology.

Cisco shares rose sharply in after-hours trading after Chief Executive John Chambers said in a statement that the company was seeing good signs in a "slow, but steady economic environment."

"We are starting to see some good signs in the U.S. and other parts of the world which are encouraging," Chambers said.

Profit for the fiscal third quarter ended on April 27 grew to $2.5 billion, or 46 cents per share, from $2.17 billion, or 40 cents per share, in the year-ago quarter.

Excluding unusual items, earnings per share came in at 51 cents compared with Wall Street expectations for 49 cents according to Thomson Reuters I/B/E/S.

Recent weak results from companies including Juniper Networks and International Business Machines Corp. made investors worry that Cisco would follow suit, due to sluggish spending by customers such as the U.S. government.

RBC Capital markets analyst Mark Sue said that Cisco's better than expected revenue showed that they are executing well to make the most out of a weak economic environment.

"They seem to be bucking the trend, and that's encouraging," said Sue.

Mark McKechnie, an analyst at Evercore was impressed with Cisco's gross margin of 63 percent, above the company's target of 61 to 62 percent.

"It will be interesting to see if they can raise the guidance on margins, McKechnie said.

Revenue rose more than 5 percent to $12.2 billion from $11.6 billion and compared with Wall Street expectations for $12.18 billion according to Thomson Reuters I/B/E/S.

At about 6 p.m. New York time, Cisco shares were up $1.79, or 8.4 percent, at $23. During the regular session, the shares were little changed at $21.21 on Nasdaq.

© 2015 Thomson/Reuters. All rights reserved.

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