--Results top analysts' expectations
--Revenue from Europe slips slightly
--Reported margins remain strong
(Adds analyst comments, geographic results, and company
background beginning in first paragraph.)
By Drew FitzGerald
Cisco Systems Inc.'s (CSCO) fiscal first-quarter profit jumped
18% as the network-equipment maker continued to sell routers and
switches profitably despite a slump in U.S. federal spending and
ongoing weakness in Europe.
The stronger-than-expected figures bucked a parade of negative
results from fellow technology providers such as Intel Corp. (INTC)
and International Business Machines Corp. (IBM), suggesting the
slump in business spending hurting many of Cisco's other peers
wasn't as dire as feared.
The results marked the San Jose, Calif., company's fourth
straight quarter of earnings growth after the company stumbled in
2011, delivering underwhelming results that triggered a massive
restructuring effort.
On Tuesday, Chief Executive John Chambers attributed the
company's stronger performance to stiff cost controls and higher
revenue from services despite soft demand from European customers
and the U.S. federal government.
Shares jumped 7% to $18.03 after hours as the results topped the
company's October guidance, erasing a 6.8% year-to-date decline
through Tuesday's close.
Looking to the current quarter, the company predicted a
per-share profit of 47 cents to 48 cents with revenue growth
between 3.5% and 5.5%. Analysts polled by Thomson Reuters, on
average, predicted per-share earnings of 47 cents on 4% revenue
growth.
Cisco, the world's dominant maker of networking devices that
support Internet traffic, is often used as a barometer for the
state of companies' technology-spending plans.
Economic woes in Europe continued crimp customer demand with
little sign of immediate improvement, Mr. Chambers told analysts on
the company's conference call, while U.S. federal spending dropped
15%.
Product orders reflected companies' hesitant stance, with
enterprise orders slipping 1% in the latest quarter while service
providers--telecommunications companies and other normally reliable
buyers of network gear--boosted orders 3%. Public-sector orders
dropped 6%.
"During tough economic times, some people just take their foot
off the gas and watch," he said in response to a question about the
company's collaboration business, which includes software such as
WebEx. "We are seeing some of that."
JMP Securities analyst Erik Suppiger said Cisco's results in the
latest quarter suggested "pricing in switching has held up
relatively well," despite the large share of less-profitable
products like servers in the top line.
Analysts and investors have questioned Cisco's ability to
maintain favorable equipment prices amid competition from low-cost
competitors and new technology that promises to shake up the way
data-center technicians control their networking equipment.
For the quarter ended Oct. 27, however, Cisco posted a profit of
$2.09 billion, or 39 cents a share, up from $1.78 billion, or 33
cents a share, a year earlier. Excluding stock-based compensation
and other impacts, per-share earnings rose to 48 cents from 43
cents. Revenue increased 5.5% to $11.88 billion.
Cisco predicted in August a core profit of 45 cents to 47 cents
a share on revenue growth of 2% to 4% from a year earlier.
Gross margin ticked down to 61% from 61.2%. Operating expenses
fell 2% as the company booked fewer restructuring-related
charges.
Cisco's revenue from Europe, the Middle East and Africa declined
slightly, while revenue grew 6.6% and 10%, respectively, in the
Americas and Asia.
Revenue from the products, Cisco's biggest top-line contributor,
rose 3.9% while revenue from its services segment increased
12%.
--Kristin Jones contributed to this article.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires