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NEW YORK (CNN/Money) -
Who needs Nokia?
Cisco Systems, which was cited in a little-known British newspaper report Sunday as being interested in acquiring the Finnish cell phone maker and wireless networking firm, appears to be doing fine on its own. And most analysts dismissed the Nokia rumor, saying that Cisco would be unlikely to make such an expensive purchase.
Cisco, the world's largest maker of gear such as routers and switches that connect computers and servers to the Internet, reported healthy gains in sales and earnings for its fiscal fourth-quarter Tuesday. Sales rose 11 percent, a tad better than expected, to $6.58 billion, while pro forma earnings per share increased 19 percent to 25 cents a share, in line with forecasts.
Investors did not appear to be overly enthusiastic about the report, however. Shares of Cisco (Research) were initially up slightly in after-hours trading, according to INET, after gaining nearly 2 percent in regular trading on the Nasdaq Tuesday. But following the announcement of Cisco's first-quarter guidance, shares took a sharp dive, falling nearly 3 percent.
Sales growth not enough to satisfy
During a conference call with analysts, Cisco CEO John Chambers said that sales in the first quarter would be flat to down slightly from the fourth quarter. Even though flat revenue growth sequentially would still represent a 10 percent increase from a year ago, analysts had been expecting sales to come in at $6.63 billion, a small increase from the fourth quarter.
Cisco chief financial officer Dennis Powell added during the call that for the next few fiscal years, sales growth should be in a range of 10 percent to 15 percent annually and that sales for fiscal 2006 would be up between 10 and 12 percent. Analysts were expecting a 12 percent increase in fiscal 2006.
The company said that strength in all its product lines and increased spending from large corporate customers, known as enterprise customers, led to the strong fourth quarter numbers.
"The home run again this quarter was the continued balance we've achieved across geographies, architectural evolutions, product families and market segments, with the commercial and enterprise segments bringing in top results," said Chambers in a statement.
And during the conference call, Chambers added that the company's so-called advanced technologies business lines, smaller units that have higher growth potential, continue to post healthy gains in orders.
Chambers said that five of the six advanced technologies divisions enjoyed orders gains between 25 percent and 50 percent from a year ago while the sixth division, optical networking, had an increase in the high-teens. Cisco has embraced newer technologies such as optical networking, home networking and security in order to lessen its reliance on the maturing switches and router business lines.
Just say to Nokia
Chambers also addressed the Nokia (Research) acquisition rumor during the call, albeit indirectly.
In response to an analysts' question about whether or not Cisco was looking to change its acquisition strategy, Chambers said that the company will continue to look for deals but that it prefers to buy smaller private companies with approximately 100 to 200 employees. Without mentioning Nokia by name, he shot down speculation about a deal. "It is extremely unlikely for us to ever do a large acquisition. My view is that almost all of them fail," he said.
Despite the weaker than expected outlook, analysts said investors had reason to cheer Cisco's results. Erik Suppiger, an analyst with Pacific Growth Equities, noted that Cisco's gross margins, an important measure of profitability, came in at 67.9 percent for the quarter, up from 66.8 percent in the third quarter. Suppiger said he was expecting margins to be unchanged from a quarter ago.
"This was a very respectable quarter," said Suppiger. "There was slight upside on the top line and the improvement in gross margins were encouraging."
Bert Hochfeld, an analyst with Hochfeld Independent Research Group, said that Cisco's results are further evidence that corporate demand for technology is picking up after a mixed first-quarter.
"It's fair to say that we're seeing an improvement after a soft patch when a lot of companies were missing numbers in April. There were very few tech companies that missed in July," Hochfeld said.
Nonetheless, shares of other techs fell after-hours Tuesday on Cisco's news. Large caps Microsoft (Research), Oracle (Research), Dell (Research) and Intel (Research) all dipped modestly while shares of Cisco competitors Juniper Networks (Research) and Foundry Networks (Research) each fell more than 1 percent.
Analysts quoted in this story do not own shares of Cisco and their firms have no investment banking ties to the company.
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