RealTime IT News

Cisco Profit Beats Expectations

Cisco Systems posted higher-than-expected quarterly earnings as the network equipment maker managed to contain costs, even as revenue fell for the first quarter in more than five years.

Shares of Cisco (NASDAQ: CSCO) rose nearly 2 percent in cautious trade ahead of the company's earnings conference call, where CEO John Chambers is expected to outline his outlook.

Chambers said in a statement that Cisco intends to "accelerate the alignment of our resources" and gradually decrease operating expenses.

Net profit for the fiscal second quarter ended Jan. 24 fell to $1.5 billion, or 26 cents per share, from $2.1 billion, or 33 cents a share.

Profit excluding items fell to 32 cents a share from 38 cents, exceeding the market's average forecast of 30 cents a share according to Reuters Estimates.

"The numbers look pretty good, all things considered in the tough environment. The [earnings per share] beat shows strong cost containment in an environment of reduced demand," said Mark Sue, analyst at RBC Capital.

Revenue fell 7.5 percent to $9.1 billion, the first year-on-year decline since 2003, as the economic downturn forced companies to cut back on technology spending.

Wall Street analysts on average had expected revenue of $9.0 billion, according to Reuters Estimates. In November, Cisco forecast a 5 to 10 percent year-on-year decline.

The results and outlook are closely watched as an early indicator of changes in technology spending. Cisco is one of the first high-tech companies to report results that include most of January.

Tighter credit and a hazy economic outlook has made it harder for companies to invest in big-ticket technology items such as Cisco's routers. A Cisco CRS-1, for example, costs around $500,000 to $1 million.

Cisco and other network equipment makers have said until recently that growing use of the Internet, particularly online video, would help shelter them from the recession.

Some vendors had hoped that network upgrades by phone companies would help buffer the impact of declining corporate spending, but tight credit and sluggish consumer spending has hit U.S. phone and cable service providers much harder than many expected.

Top U.S. phone companies AT&T and Verizon Communications have said they are trimming capital spending in 2009. AT&T expects to cut spending by 10 to 15 percent from 2008.

Cisco shares rose to around $16.20 in after-hours trade, after closing up 1.41 percent at $15.84.