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Cisco (CSCO) Reports Solid Q4; Shares Up Pre-Market

 August 11, 2011 09:34 AM

The globe's leading networking equipment maker reported strong fourth quarter earnings that came in a couple of cents above analysts' consensus. Revenue reported for the quarter was also around $215 million higher than anticipated.

The Street expected this quarter to be a challenging one for Cisco (CSCO) as government spending, which accounts for around a fifth of the company's revenue, has been slowing. Analysts did lower their earnings estimate, but regardless its above-consensus earnings will definitely be a sign of relief to investors.

The company reported revenue this quarter of $11.2 billion, up 3 percent year-over-year. In spite of the company's stringent cost cutting measures, margins were depressed and caused earnings to fall by 7 percent year-over-year.

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Router and switches sales for the quarter were lower by 2 percent and 4 percent respectively compared with the last quarter of fiscal year 2010. New products which includes video, security, collaboration, wireless and data center sales were up 7 percent, and service revenue was up 12 percent year-over-year respectively. The company reported that sales increased across all geographic segments.

Orders during the quarter also grew handsomely compared with the year-ago quarter. Router orders were up 17 percent thanks to the Cisco ASR 9000 Series Aggregation Services Routers, which has been selected and implemented by major communications companies. Switching orders were up 6 percent, and new products orders grew 11 percent. Large business spending is expected to be up, much to the relief of investors, but government and public spending is still weak thanks to a flagging economy.

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Entering FY2012, the company has firmly focused on its restructuring efforts, which will seek to eliminate around $1 billion in annual costs. The company is making job cuts and seeks to shed 15 percent of its workforce, and is also selling off operations that are hurting margins. Company CEO and Chairman John Chambers stated in its earnings release, "As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company."

For the next quarter, Cisco expects revenue to grow in the range of 1 percent to 4 percent, which is higher than the markets consensus. By focusing on its core business of networking, the company is looking to help revive and turn its fortunes around.

Cisco, which released its earnings report after the end of yesterday's trading session, is already up close to 12 percent in pre-market trading. The stock took quite a battering yesterday after it slumped to new 52-week lows. This round of good news should help buoy its stock today, but if the market volatility seen over this week is anything to go by, things could go either way.




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