* Fiscal Q2 sales $10.41 bln, Street expected $10.23 bln
* Q2 EPS excluding items $0.35, beats by 2 cents
* Shares off 10 pct, analyst says gross margin disappoints
(Adds more conference call comments; updates share price)
By Ritsuko Ando
NEW YORK, Feb 9 Network equipment maker Cisco
Systems Inc (CSCO.O) CEO John Chambers stunned investors for
the third time in as many quarters, warning of worsening
The company's weak gross margins and a weaker-than-expected
profit forecast for the current quarter also added to worries
that the leading manufacturer of routers and switches was
facing tough competition from rivals like Hewlett-Packard Co
Cisco shares fell 10 percent after hours, dragging down the
stock of peers such as Juniper Networks Inc (JNPR.N), F5
Networks Inc (FFIV.O) and Riverbed Technology Inc RVBD.O.
Investors had also been spooked last quarter when Cisco
blamed a weak outlook on weak orders from debt-burdened clients
in the public sector, and Chambers didn't offer much of a
relief this quarter either.
"Unfortunately, we believe that our concerns in the public
sector will continue to be challenging in the developed world
for the next several quarters," he said, adding that Cisco's
government accounts in the United States, Europe and Japan had
all been hit in the second quarter.
"The challenges at state, local, and eventually federal
level in our opinion will worsen over the next several
quarters," he said of the U.S. market.
Cisco's second-quarter gross margin fell to 62.4 percent
from 64.3 percent a year earlier, confirming analysts' concerns
that growing competition may be forcing the company to cut
prices to protect market share.
"The results were a little bit better than expected on the
top line and also better on the bottom with some help from a
better tax rate. However, investors are looking at the gross
margins, which declined sequentially," said RBC Capital Markets
analyst Mark Sue.
Chambers pledged to form a working group to improve margins
and safeguard against market share erosion.
Cisco's fiscal second-quarter revenue rose 6 percent from a
year earlier to $10.41 billion. Analysts had expected $10.23
billion, according to Thomson Reuters I/B/E/S.
The company's net profit for the quarter ended Jan. 29 fell
to $1.5 billion from $1.9 billion a year earlier. Excluding
items, its earnings per share was 37 cents, beating the
market's average forecast of 35 cents and Cisco's own forecast
of 32-35 cents.
The company forecast third-quarter profit per share,
excluding items, would range from 35 to 38 cents, below Wall
Street expectations of 40 cents.
Cisco forecast revenue in its fiscal third and fourth
quarters within range of Wall Street estimates, failing to pull
its shares higher.
The company expects revenue for the current third quarter
to rise by 4 to 6 percent. It sees fourth-quarter revenue
growing 8 to 11 percent. Wall Street analysts estimate 5
percent growth for the third quarter and an 8 percent rise for
Cisco is considered one of the sector's prime bellwethers
due to the breadth of its customer base which ranges from small
U.S. businesses to foreign governments. Also, its last quarter
ended in January rather than December like most of its peers,
making its results a more up-to-date indicator of technology
(Reporting by Ritsuko Ando; Editing by Richard Chang)