Cisco’s Worrying Forecast Overshadows Record 3Q Earnings

by Gaurav Kheterpal on May 14, 2012

Cisco’s been on a roll off-late – scooping up LightwireNDSClearAccess, Truviso and investing $100 million in a networking startup called Insieme. The networking giant also unveiled a new line of Linksys Smart Wi-Fi Routers with app-enabled capabilities for consumers to power and enjoy their connected homes of today and tomorrow.

All in all, it’s been an impressive third quarter for Cisco. The networking giant last Thursday reported record net sales of US$11.6 billion for the quarter ending April 28, up 6.6 percent from the year-earlier period. Net income rose as well but all positives were overshadowed by weak projections for the current financial period, as Chief Executive John Chambers pointed a “cautious” spending environment.

And when a company like Cisco raises such concerns, a sharp slowdown in technology is likely to further rattle investors already worried about a volatile global economy.

Despite the overall cautious outlook, one must take notice that the latest quarter marks Cisco’s second straight quarter of improved earnings, which follows a yearlong streak of year-over-year profit declines. CEO John Chambers attributed the weak outlook to a growing proportion of customers who are waiting longer to close deals and spending less money because of growing concerns about the economy, particularly in Europe.

“We delivered solid results this quarter with record revenue and non-GAAP earnings per share,” he said. “We are successfully executing against our long-term strategic plan of growing profit faster than revenue, and in a cautious IT spending environment, we continue to outperform our competitors.”

Despite the overall cautious outlook, Cisco says it is benefiting from telecommunications and other companies’ need for more robust networks to support mobile and cloud computing. The company’s product segment saw revenue rise 5% while its services segment’s revenue increased 13%. Over the years, Cisco’s outlook has been widely seen as a trendsetter for the broader technology industry and it’s no surprise that the networking giant’s remarks hit the shares of arch rivals Juniper Networks and Brocade Communications in after-hours trades.

Analysts believe Cisco is also facing increased competition from HP, a company that hit rock bottom last year and it can only go up from there. However, the fourth quarter has typically been the company’s busiest period, so it will be interesting to see how things pan out over the next few months.

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Written by: Gaurav Kheterpal. Follow TheTelecomBlog.comby:RSS,TwitterFacebook, or YouTube.

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