Cisco Results Top Expectations; Raises Dividend, Buyback -- Update
February 10 2016 - 7:47PM
Dow Jones News
By Don Clark
Cisco Systems Inc. posted a 31% jump in quarterly net profit on
Wednesday, but showed signs that weakening economic conditions have
taken a toll on the businesses that the networking equipment giant
serves.
The San Jose, Calif.-based company, whose results are closely
watched as an indicator of corporate technology demand, also
boosted its quarterly dividend and stock-buyback plan, and
projected stronger revenue for the current quarter than some
analysts had expected.
Its shares, off 17% since the beginning of 2016, rose 7% in
after-hours trading following the news.
Cisco's numbers for the period ended in January showed both
positive and negative signs, which the company attributed partly to
steady buying by telecom services and caution among other corporate
customers.
For example, the company said revenue grew 5% in a routing
equipment segment that had been shrinking lately, a category of
hardware largely purchased by communications carriers. Video
equipment purchased by carriers rose 37%. Security and
collaboration products also grew.
But sales of switching gear--Cisco's largest single
business--declined 4%, reversing a recent pattern. Revenue for
Cisco's data center group, led by sales of server systems, declined
3% after growing 24% in the period ending in October.
Chuck Robbins, Cisco's chief executive, said the company began
hearing signs of caution among some corporate customers in January,
toward the end of the quarter. In response to developments such as
declining stock prices, he said, companies began holding up orders
on nonessential purchases such as some types of the switching
systems used on corporate campuses.
"They were trying to adjust to what was going on," Mr. Robbins
said. "They just paused a bit."
On the other hand, Cisco seems to have gotten past a long-term
slide in its business in China. The company had been hurt there
both by suspicion that non-Chinese hardware could be used by spies
as well as the emergence of credible alternative products from
local suppliers such as Huawei Technologies Co. In November, Cisco
had reported a 40% jump in its orders in China. The company said
orders rose another 64% in the period ended in January, led by
demand for video equipment.
Cisco has faced an industrywide shift of some networking
functions to software from the hardware that has been its
specialty. Mr. Robbins and predecessor John Chambers, who gave up
the CEO job last summer, have responded by trying to build new
software and services that can generate recurring revenues.
To underscore Cisco's belief that it can weather the current
turbulence, the company on Wednesday raised its quarterly dividend
by 24% and increased its stock-buyback plan by $15 billion.
"I feel very confident," Mr. Robbins said.
In all, Cisco reported that net profit for the period ended Jan.
23 rose to $3.15 billion, or 62 cents a share, up from $2.4
billion, or 46 cents a share. On an adjusted basis that includes
items such as stock-based compensation and tax-related gains, the
company's per-share earnings rose to 57 cents from 53 cents a year
ago.
Total revenue slipped slightly to $11.93 billion from $11.94
billion a year ago. Excluding a video business that Cisco divested
in November, the company's revenue rose 2% to $11.8 billion.
Analysts surveyed by Thomson Reuters were expecting adjusted
earnings of 54 cents a share on revenue of $11.75 billion.
For its fiscal third quarter, Cisco projected per-share adjusted
earnings per share of between 54 cents and 56 cents, along with
revenue growth of between 1% and 4%. Analysts, on average, were
expecting earnings on a similar basis of 55 cents a share and
revenue to slide 1%, according to Thomson Reuters.
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
February 10, 2016 19:32 ET (00:32 GMT)
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