NEW YORK (CNN/Money) -
Cisco Systems Inc. Tuesday reported quarterly profits that topped Wall Street forecasts as corporations boosted spending on high-tech gear, but its stock fell in after-hours trading as investors appeared to be expecting even more.
The big maker of computer network equipment said it earned $1.3 billion, or 18 cents a share, excluding an accounting charge, in its second fiscal quarter, up from $1.1 billion, or 15 cents a share, a year earlier, also excluding charges. Including the charge of 8 cents a share, Cisco earned 10 cents a share in the latest quarter.
The San Jose, Calif.-based company took the charge to reflect stock compensation expenses associated with its acquisition of privately held storage switch company Andiamo Systems. Analysts were expecting Cisco to post earnings, excluding charges, of 17 cents a share, according to First Call.
Cisco's sales came in at $5.4 billion, above the Wall Street consensus estimate of $5.3 billion. Revenues rose 14.5 percent from the year-ago quarter and 5.8 percent from the prior quarter.
Despite the strong results, Cisco (CSCO: Research, Estimates) shares tumbled more than 4 percent in after-hours trading, according to Instinet. The stock rose less than 1 percent in regular trading on the Nasdaq Tuesday.
The stock, which surged nearly 85 percent last year, is off to a hot start in 2004, up nearly 10 percent so far this year.
"It is becoming increasingly clear that the global economy is improving," Cisco CEO John Chambers said in a statement. "As customers feel more confident to invest, we believe that we are well positioned to provide compelling value as a strategic business adviser and technology partner."
And during a conference call with analysts, Chambers added that he was feeling more confident now than during the fiscal first quarter.
Not enough to satisfy Wall Street
But Wall Street was hoping for Cisco to beat sales and earnings estimates by a wider margin. Erik Suppiger, an analyst with Pacific Growth Equities, said that Wall Street needed to see a sequential increase in sales of better than 7 percent for the stock to head higher.
Guidance for fiscal third-quarter sales was also not as high as some investors might have been anticipating. During the call, Chambers said Cisco expects third-quarter sales to be up 1 percent to 3 percent from the fiscal second quarter. That implies a range of about $5.45 billion to $5.56 billion. The current consensus sales estimate for the quarter is $5.4 billion.
In addition, Michael Davies, an analyst with Caris & Co., said that based on the sales figure that Cisco reported, he was hoping for earnings, before charges, to come in at 19 or 20 cents a share. He said Cisco's Linksys division, which sells routers to consumers, is doing well from a sales standpoint but this business has lower profit margins, which impacted earnings.
Cisco's widely watched gross margin figure, which measures how profitable a company is after subtracting cost of sales, came in at 68.5 percent, in line with the 67 percent to 69 percent range the company predicted when it reported first-quarter results in November. But margins fell a bit from the first quarter's 68.7 percent.
Davies added that he's worried Cisco and other networking equipment manufacturers may be offering price concessions to telecom carriers in order to induce them to start spending again. This could lift sales, but at the expense of profits, he said. Cisco generates about a quarter of its total revenue from sales to telecom service providers.
The fact that rival telecom equipment company Ciena warned Tuesday that its fiscal first-quarter sales would be lower than expected may also contribute to these fears. The company blamed the timing of an order for the shortfall but in a written statement, Ciena (CIEN: Research, Estimates) CEO Gary Smith said the "environment remains challenging."
Ciena's stock plunged 15 percent in after-hours trading. Several other networking firms also headed south after-hours, including Juniper Networks (JNPR: Research, Estimates), Lucent Technologies (LU: Research, Estimates), Nortel Networks (NT: Research, Estimates), and Sycamore Networks (SCMR: Research, Estimates).
Still, Chambers expressed optimism about emerging growth businesses for Cisco, which include storage, security and technology that enables phone calls to be made over the Internet.
Chambers said that Cisco's advanced technology businesses accounted for 15 percent of Cisco's total sales in the quarter.
Cisco has been taking steps to expand beyond its core business of selling switches and routers, which is starting to mature as well as face increasing competition.
Davies owns shares of Cisco but Caris & Co. has no investment banking relationship with the company. Suppiger does not own shares of Cisco and his firm has no investment banking relationship with Cisco.
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