Cisco's beats for Q1; bullish on investments and recovery

Cisco's profits are down from last year but the company beats Wall Street's expectations for the first quarter and is bullish on its investments for an economic recovery.
Written by Sam Diaz, Inactive

Cisco, which went on quite a buying spree last month, beat Wall Street's expectations for its fiscal first quarter and said that its investments are showing signs of paying off now that the economy is starting to show signs of recovery.

For its first quarter, which ended October 24, the company reported adjusted net income of $2.1 billion, or 36 cents per share, a 14 percent dip from a year ago, on sales of $9 billion, which was down 13 percent from a year ago. Analysts had been expecting adjusted earnings of 31 cents per share on sales of $8.7 billion. (Statement)

In a call with analysts today, CEO John Chambers said that, from a financial perspective, the quarter was very strong, compared to its expectations and given the challenges that remain in the global economy. He said that almost off of the company's internal financial measurements exceeded or came in at the high end of the company's expectations.

But he also warned that analysts should not get ahead of themselves to use the positives of the first quarter to make assumptions about the full year but instead to wait and see how the second quarter, which is expected to be strong, actually plays out. For the second quarter, the company forecast revenue to grow one percent to four percent over the previous year, or sequentially by two to five percent. Chambers was careful to not declare an economic recovery but instead said that the signs of recovery are getting stronger.

Despite the declines from 2008, the company was bullish on the future, specifically on the work they've done to transform the Cisco beyond a networking company and position itself to be competitive with other technology bellweathers as the economy starts to recover. In a statement, CEO John Chambers said:

We believe that key market transitions across collaboration, virtualization and video will drive productivity and growth in network loads for the next decade, and are evolving even faster than expected. Our ability to launch four proposed acquisitions, the ecosystem-shifting coalition with EMC/VMware, and five new products and industry solutions into the Cisco pipeline in the past few months alone underscore this momentum. Our build -- buy -- partner innovation engine is clearly running on all cylinders, while our operational machine is pulling costs out of the business even as we scale new models for growth. Execution and results over time will demonstrate the long-term impact of this vision and strategy -- but a new model of productivity based on collaboration is clearly emerging and we believe this may be the most profound opportunity for businesses in our 25 years as a company."

As the economy remained uncertain for most of 2009, Cisco spent the year transforming itself, starting with the announcement of its Unified Computing System in March. More recently, the company made three acquisiton announcements in the month of October - $3 billion for Tandberg, a video conferencing equipment maker, $2.9 billion for Starent, a provider of mobile Internet Protocol gear, and $183 million for ScanSafe, an Internet security company.

Earlier in the year, Cisco bought Pure Digital, which makes the popular Flip Video camera, for $590 million and picked up Tidal Software, which makes application management and automation software, for $105 million.

Shares of Cisco were up slightly in regular trading, closing at $23.29. Shares were on the upswing in after-hours trading, up more than 5 percent.

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