Cisco Systems Inc. forecast slim revenue growth this quarter, a pleasant surprise to investors bracing for a sharp pullback in global technology spending that sent its shares soaring 10 per cent.
The world’s leader in Internet networking equipment predicted in-line sales growth of 1 to 4 per cent this quarter after posting quarterly results on Wednesday that edged past Wall Street’s scaled-back expectations.
Analysts took that as an early sign that tough measures to return the Silicon Valley giant to growth – including layoffs and asset sales – were taking hold. Some feared Cisco would follow rivals Juniper Networks Inc. and Brocade Communications Systems Inc. in slashing results forecasts.
“The guidance was in-line – which was much better than feared,” said Sterne Agee analyst Shaw Wu.
“There were expectations that they would guide down like most of their smaller peers.”
Cisco shed about a third of its market value in 2011, punished by flagging growth and the loss of market share to aggressive rivals like Juniper.
The erstwhile stock market darling, which depends on government spending for about a fifth of its revenue, said in July it would cut 15 per cent of its work force and sell a set-top box factory in Mexico as part of an effort to slash annual expenses by $1-billion.
Chief executive officer John Chambers, who in April famously said Cisco had lost its way, told analysts he foresaw “gradual improvement” in the business, while warning again of a challenges for global public sector spending in coming quarters.
That came after the company racked up better-than-expected sales, profit and margins in the fiscal fourth quarter.
Shares of Cisco rose as much as 10 per cent in extended trade after closing down 2.3 per cent on Nasdaq. They later pared gains to trade up 8 per cent at $14.81.
“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 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 hurt the San Jose, Calif., company’s business more.
Investor sentiment also worsened after rivals Juniper and Brocade slashed outlooks in recent weeks as the economic picture darkened, slamming their shares.
Its first-quarter projection translated to revenue of about $10.86-billion to more than $11-billion. Analysts on average had expected revenue of about $10.95-billion in the fiscal first quarter ending October.
They had expected fourth-quarter revenue of $10.97-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.