Cisco very bullish on current outlook

August 9, 2006

After the markets closed yesterday, Cisco Systems delivered very strong results for the latest quarter, and issued full-year sales projections that were above Wall Street's consensus estimates. The news helped sparked a big rally in Cisco shares.

Excluding certain items, Cisco posted earnings of 30 cents a share for its fiscal fourth quarter ended July 29.

Many analysts had been expecting earnings of only 28 cents a share for the period.

Cisco investors have taken a roller coaster ride this year. Net income, which includes expenses related to employee stock, rose to $1.54 billion in the fourth quarter, or 25 cents on a per-share basis.

Cisco Systems said sales jumped 21.08 percent to almost $8 billion, exceeding consensus estimates for revenue of $7.918 billion.

Cisco's results show that the company's business hasn't been harmed by weak spending by some telecom companies, said Les Satlow, a portfolio manager at Cabot Money Management, which owns shares of Cisco.

As a whole, telecom carriers are big buyers of network and communications gear made by Cisco.

The strong quarter and solid outlook were encouraging, said Inder Singh, an analyst with Prudential Equity.

"In a tough macro-environment where GDP growth is slowing and there's general uncertainty, it's nice to see a company like Cisco come through with very strong results and then sound bullish on the next 12 months," he said.

During a conference call with analysts, CEO John Chambers forecast revenue to grow 15 to 20 percent in fiscal 2007, exceeding expectations for growth of 15 percent for the full year.

He also eased worries about near-term weakness, forecasting first-quarter revenue to rise 19 to 21 percent to a range of $7.79 billion to $7.93 billion, in line with Wall Street's estimates.

"Everybody has been concerned that with interest rates and oil prices going up, businesses aren't going to spend as much on IT," Paras Bhargava, an analyst with BMO Capital Markets, said.

But Cisco's upbeat outlook helped clear away those concerns, he said. On the conference call, Chambers said momentum was strong for Cisco's business and the company gained market share in all of its segments during the fourth quarter.

Revenue from Scientific-Atlanta surged 15 percent to $582 million, helping boost sales. Cisco bought the cable set-top box maker earlier this year for $6.9 billion as part of a wider move into what it calls advanced technologies, which include areas like home networking.

The company's core business remained solid, Chambers said. Sales of routers jumped 12 percent, while sales of switches rose 8 percent during the quarter.

For fiscal 2006, Cisco reported earnings on an adjusted basis of $1.10 a share on revenue of $28.5 billion. Consensus analyst estimates were looking for earnings of $1.08 a share on sales of $28.4 billion.

Cisco shares have been up and down this year. As of Wednesday's close, the stock was trading just a shade above where it started the year.

Source: CNN Money

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