From Staff Reports
Cisco Systems Inc. (CSCO), the world's biggest maker of networking gear and the focus of a recent " " feature in Money Morning, is not in any deal talks with any big companies, and apparently won't be a bidder for data storage giant EMC Corp. (EMC), Cisco Chief Executive John T. Chambers told CNBC in an interview late yesterday (Wednesday).
While noting that he would "never say never," Chambers told the cable news channel that Cisco doesn't "have any negotiations with any large companies [under way] at this time," noting that his company is focused on buyouts of small- and medium-sized companies.
Shares of the San Jose-based Cisco jumped $1.28 each, or 5.65%, to close at $23.93 yesterday. Investors bid up the stock of the networking giant after its fourth-quarter results exceeded Wall Street estimates, suggesting the bellwether tech giant's business remains strong – despite the global financial slump. The fourth-quarter results were released last Tuesday.
The company's stock had recently been trading at its lowest level in nearly two years, though shares jumped 3% on Tuesday ahead of the earnings statement, and then nearly 6% yesterday in response to the report, MarketWatch.com reported.
For the three months ended July 26, Cisco reported net income of $2.01 billion, or 33 cents per share, compared with profits of $1.9 billion, or 31 cents per share, a year ago. Adjusted income was actually 40 cents a share, a penny ahead of the 39 cents analysts had been expecting Cisco to report.
Revenue was $10.4 billion, an increase of 9.9% from revenue of $9.4 billion in last year's fourth quarter and ahead of the $10.3 billion Wall Street was expecting. It also marked the first time that Cisco's quarterly revenue exceeded the $10 billion mark.
Cisco's broad product array and deep industry reach are reassuring investors that Chambers can boost revenue and profits even as companies trim their information-technology budgets.
In fact, orders from large corporations increased 13%, spurred by demand for equipment used in company data centers – results that easily outpaced the 5% increase in orders from telephone and cable-TV companies, Bloomberg News reported.
"It's tough out there, no question," RBC Capital Markets analyst Mark Sue said in a research note. "Yet Cisco's portfolio approach and diversification across geographies and product segments seem to be working well as evidenced by its strong revenue growth."
Indeed, Jerome Dodson, CEO of Parnassus Investments in San Francisco, told Bloomberg that "the stock should be trading at a higher price."
"Given the weak economy, the results are very good," said Dodson, whose firm oversees $1.5 billion in assets.
For the fiscal first quarter, Cisco said sales would advance at about an 8% clip, implying revenue of $10.3 billion – just below Wall Street's estimate of $10.4 billion. In the second quarter, sales will rise 8.5%, reaching $10.7 billion – meeting expectations, according to Bloomberg.
During a conference call with analysts and investors, Chambers, 58, said he expects "economic challenges" for "a few quarters." But he maintained the company's long-term annual sales growth target of 12% to 17%.
However, Cisco is forecasting sales for only the first half of the year – and not the entire year, as has been customary – said company Chief Financial Officer Frank Calderoni. The reason: The current economic conditions are so uncertain that management doesn't feel comfortable making longer-range predictions.
"Expectations are very low," Christopher Baggini, a fund manager at Aberdeen Asset Management Inc. in West Conshohocken, Penna., told Bloomberg Radio. "Chambers had said just a month ago how most of their customers were discussing a rebound in 2009, certainly not in the second half of 2008."
For the full year, overall product sales advanced 8.8% to $8.64 billion. Sales from services, which include consulting and support, gained 16% percent to $1.72 billion, Cisco said. Router sales rose 8% from a year ago, while sales from switches rose 5%.
Orders in the United States and Canada advanced 7% from last year, and ran well behind international bookings, which rose in excess of 30% in China and more than 40% in Russia and Mexico.
In July, tech stalwarts Microsoft Corp. (MSFT) and Google Inc. (GOOG) both reported lower-than-expected profits, fueling concerns of a major demand slowdown for computer-related products. In fact, Google CEO Eric E. Schmidt said his company was facing "a more challenging economic environment" for its first time ever.
At yesterday's closing price, Cisco's shares are down 69% from their all-time high of $77.31 and are 30% below their 52-week high of $34.24. Although most investors realize this will never be the great growth stock that it was a decade ago, Money Morning Contributing Editor Horacio Marquez says that – when it comes to Internet-infrastructure gear – Cisco remains the proverbial "800-pound gorilla," the market leader and dominant-industry player, meaning it's too important for investors to give up on.
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Cisco Net Rises 4.4%; Sales Forecasts Meet Estimates.
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