--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 firstname.lastname@example.org
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