Tech Sector: Cisco Systems Inc. (Nasdaq: CSCO) Earnings Show It’s Gearing Up for a Rebound

The Cisco Systems Inc. (Nasdaq: CSCO) earnings report today (Wednesday) showed the company's dark days of 2011 are gone, and it can once again compete in the booming tech sector.

Cisco beat Wall Street expectations with its second-quarter earnings report today (Wednesday). The tech sector giant reported a 44% year-over-year rise in profit to $2.2 billion, with earnings per share 40 cents. Revenue rose 11% from the year before to $11.5 billion.

Excluding the cost of stock-based compensation and some acquisition-related amortization, Cisco earned 47 cents per share.

The stock rose more than 4% in after-hours trading after beating The Street expectations of 43 cents per share on $11.23 billion in revenue.

Investors were optimistic ahead of the report, and hoped CSCO's six-month share-price rally would continue. Cisco's stock is up more than 50% since August.

The company also raised its quarterly dividend 33.3% to 8 cents a share, for an annual yield of 1.6%.

The news fueled investor optimism toward the tech sector, since Cisco is a sector bellwether because it operates globally with a diverse client base. Cisco's earnings also prove its efforts to develop a more efficient, competitive and less costly company have paid off.

"Our operational focus continues to yield positive results - we hit our billion dollar expense reduction a quarter early," Chief Executive John Chambers said in a statement on Wednesday.

Cisco Systems Inc. (Nasdaq: CSCO)
On the Rise

Cisco went through rebuilding efforts last year after watching its stock plunge for years.

From 2001 to May 2011, while the Nasdaq Composite Index gained 34%, Cisco investors lost 12.5%. From 2010 to 2011 alone, as the Nasdaq shot up 20%, Cisco stockholders watched their shares plunge 35%.

"This is absolutely dead money," Steven C. Cortes, a founder of Veracruz LLC, a researcher for institutional investors, told CNBC last year.

Then Cisco launched a restructuring strategy to make products more competitive with rivals Hewlett-Packard Co.(NYSE: HPQ) and Juniper Networks Inc. (NYSE: JNPR). Investors now express the most bullish sentiment for Cisco in years.

"People are looking at improving trends in revenue and operating margins," Sandeep Shyamsukha, an analyst for Auriga USA, told Investor's Business Daily. "We see strong product cycles in many different segments like switches, routers, set-top boxes and servers."

The forecast-beating earnings should buoy CSCO shares into tomorrow. When Cisco even slightly disappoints on earnings, shares have plunged the day after it releases quarterly reports. That's happened five of the last six times after Cisco reported earnings according to Reuters data.

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