Cisco profit and outlook beat expectations
NEW YORK (Reuters) - Cisco Systems Inc. (CSCO.O) surprised investors on Tuesday with a stronger-than-expected outlook and quarterly profit as demand for network equipment to handle Web traffic showed no signs of weakening, driving its shares up 5 percent.
The announcement defied some analysts' predictions that the biggest maker of routers and switches to direct Internet traffic might fail to surprise this quarter, after the previous two quarterly results triggered heavy buying in the shares.
Chief Executive John Chambers forecast revenue in the fiscal third quarter to grow 19 percent to 20 percent, versus an average 17 percent forecast from Wall Street analysts, according to Reuters Estimates.
Net income for the fiscal second quarter ended January 27 rose to $1.9 billion, or 31 cents per share, from $1.4 billion, or 22 cents per share, in the same quarter a year earlier.
Earnings excluding stock-based compensation charges, amortization of intangibles and a tax credit was 33 cents per share, beating the average analyst forecast of 31 cents, according to Reuters Estimates.
"They were really good numbers for the quarter in EPS and revenue, as well as guidance. It was strong performance across the board," said Sanford Bernstein analyst Jeff Evenson.
The San Jose, California-based company has also been expanding into video, as seen in last year's acquisition of cable set-top box maker Scientific-Atlanta.
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Evenson said strong growth in Scientific-Atlanta, fueled by growth in Internet-protocol television (IPTV), or Web-based video, was one reason for the better-than-expected results.
"Largely, we're seeing continued migration to high-definition set-top boxes, combined with the adoption of IPTV," he said, giving Cisco shares an "outperform" rating.
Evenson and other analysts said they expected broader-based growth in the coming quarters, as Cisco has expanded both its business focus and geographic reach.
Quarterly sales rose 27 percent to $8.4 billion, exceeding Cisco's November forecast of 24 percent to 25 percent growth and an average analyst forecast of $8.28 billion, based on Reuters Estimates.
Cisco said Scientific-Atlanta, bought in the third quarter of fiscal 2006, contributed net sales of $639 million.
Cisco forecast third-quarter sales growth excluding Scientific-Atlanta of 15 percent to 17 percent. For the fourth quarter, it sees revenue growth of 14 percent to 16 percent.
"Although competition remains robust, we believe we are gaining market share versus almost all of our major competitors," Chambers told analysts on a conference call.
Routing revenue rose 18 percent year-over-year to $1.7 billion, helped by CRS-1, a high-capacity core router. Switching revenue rose 13 percent to $3 billion.
Chambers expected growth in a wide range of products and regions in coming quarters, and said a key driver was growing consumer demand for Web videos such as those shown on YouTube.
"We're not dependent upon a specific geography or a product," he told Reuters in a phone interview. "But what's most exciting to me personally is video. Networks are starting to grow and if there's a killer application, it's that one."
Shares of Cisco rose to $28.52 after Chambers announced the outlook, having closed at $27.28 on the Nasdaq.
"They guided upward and next quarter will be pretty good. The stock could run into low $30s into the next quarter," said Andrew Seibert, senior portfolio manager at Stewart Capital Management.
Most analysts felt there was room for more gains, but that the stock was unlikely to repeat last year's performance.
Cisco shares surged about 60 percent in 2006, compared to a 7 percent rise in the Nasdaq 100 .NDX and a 15 percent fall in rival equipment maker Juniper Networks Inc. JNPR.O.
(Additional reporting by Muralikumar Anantharaman, Sinead Carew, and Chris Sanders in New York, Scott Hillis and Duncan Martell in San Francisco)
