Cisco's Q4 beats Street view, focus on outlook

SAN FRANCISCO, USA: Cisco Systems Inc's quarterly results edged past Wall Street's scaled-back expectations as technology spending held up despite fears of a pullback, driving its shares about 10 per cent higher.

Analysts pointed to signs that the turnaround effort begun earlier this year was having an impact.

The world's largest networking equipment maker, which CEO John Chambers had said "lost its way" and needed to take tough measures to ignite growth, racked up better-than-expected sales, profit and margins in the fiscal fourth quarter.

Investors now want to hear Chambers's outlook for the current quarter and his views on how a gloomy economic picture will impact the networking industry.

In initial comments on a conference call after Cisco released earnings, Chambers said he foresaw "gradual improvement" in the business this quarter, while warning again of challenges for global public sector spending in coming quarters.

Hurdling a low bar

"They beat a low bar. A lot of it is coming from cost cutting, which we anticipated. In that sense it's a relief," said Joanna Makris of Mizuho Securities USA.

Cisco, which depends on government spending for about a fifth of its revenue, said in July that it would cut 15 per cent of its workforce and sell a set-top box factory in Mexico as part of an effort to slash annual expenses by $1 billion.

It has warned since last year that government spending cuts would include network equipment, and that a deal last week to reduce the U.S. federal budget deficit could further hurt the San Jose, California company's business.

Investor sentiment also worsened after rivals Juniper Networks Inc and Brocade Communications Systems Inc slashed outlooks in recent weeks as the economic picture darkened, slamming their shares.

Analysts on average had expected fourth-quarter revenue of $10.969 billion from Cisco, according to Thomson Reuters I/B/E/S.

Gross margins came in at 62.7 per cent, dipping from 63.9 per cent in the fiscal third quarter, but ahead of analysts' projections for under 62 per cent.

And net income rose slid 36.3 per cent to $1.2 billion or 22 cents a share, from $1.9 billion or 33 cents a share a year earlier. Excluding certain items, it earned 40 cents share, just above the 38 cents expected on average.

Shares of Cisco rose to $15.06 in extended trade after closing down 2.3 per cent on Nasdaq.

"The real issue is, does he (Chambers) give a chilling outlook or is it just a conservative outlook? Have things grinded to a halt, or is the enterprise still spending?" asked Colin Gillis, BGC Partners analyst.