Cisco posts higher profit but market unimpressed
NEW YORK (Reuters) - Cisco Systems Inc. (CSCO.O) posted a 34 percent rise in quarterly profit on Tuesday on strong network equipment sales, but the company's shares fell 5 percent in late trading as investors were unimpressed with the outlook for growth.
While Cisco's fiscal third-quarter results topped average Wall Street estimates and its outlook for the current quarter was in line with forecasts, investors had been hoping for a bigger surprise.
"Expectations are definitely going up. Some people were looking for a bigger beat," said Tim Daubenspeck, an analyst at Pacific Crest Securities.
Cisco shares rose nearly 2 percent on Tuesday before the report, boosted by an improved outlook from another technology heavyweight, Hewlett-Packard Co. (HPQ.N). Cisco's shares had risen more than 5 percent in the week to Tuesday's close.
Cisco Chief Executive John Chambers forecast fiscal fourth-quarter revenue growth in a range of 15 percent to 16 percent, less than the 21 percent gain reported for the third quarter.
Analysts had been looking for revenue of $9.3 billion for the fourth quarter, which would be growth of 15.6 percent from a year ago.
Cisco, the world's largest maker of routers and switches that direct Internet traffic, said net income for its fiscal third quarter rose to $1.9 billion, or 30 cents a share, from $1.4 billion, or 22 cents a share, in the same quarter a year earlier.
Excluding items such as share based compensation and amortization, profit rose to 34 cents a share from 29 cents a share a year earlier, beating by a penny the average analyst forecast according to Reuters Estimates.
VIDEO, EMERGING MARKETS
Cisco said service providers, or phone and cable television companies, were investing in advanced network gear, including its routers, to cope with demand for faster Internet speeds that can handle online video and other new applications.
"Video continues to drive network demand and is the potential killer application for loading and bringing value to the network," Chambers said on a conference call. "Consumer video and broadband build-out are driving much of the service provider investment."
Cisco said third quarter sales rose about 21 percent to $8.9 billion, exceeding the average analyst forecast of $8.8 billion. In February, the company forecast 19 percent to 20 percent revenue growth for the third quarter.
Cisco said it expected growth to continue, helped by its expansion in overseas markets and a broader range of products. Orders from emerging markets in the third quarter rose 40 percent year-on-year, offsetting a weaker trend in U.S. corporate demand, it said.
The San Jose, California-based Cisco has been expanding into consumer video, as seen in its acquisition last year of cable set-top box maker Scientific-Atlanta.
Scientific-Atlanta revenue rose 30 percent year-on-year in the third quarter.
GROWTH PRICED IN
Cisco shares have gained little since the start of the year due to concerns about a slower U.S. economy and views that much of Cisco's potential growth had already been priced in after a 60 percent surge in the stock price in 2006.
The shares fell to $26.85 in extended trading from their close at $28.36 on the Nasdaq on Tuesday.
"It was essentially a very in-line, very expected quarter. The top line beat by a tad and the EPS beat by a penny, but not enough to make anyone do anything," said Ehud Gelblum, an analyst at J.P. Morgan.
Gelblum attributed the fall in shares to a few investors who had speculated on stronger results. Cisco's Chief Development Officer Charles Giancarlo told Reuters there had been some "short term traders" in the market.
Some analysts said expectations for Cisco also may haverisen after Hewlett-Packard Co. (HPQ.N) raised its outlook to above Wall Street targets earlier on Tuesday.
(Additional reporting by Sinead Carew and Tiffany Wu in New York, and Duncan Martell in San Franciscao)
