Cisco's profit falls 18%, but still beats estimates

chart_ws_stock_ciscosystemsinc.top.png By David Goldman, staff writer


NEW YORK (CNNMoney) -- Cisco Systems Inc. reported a quarterly profit Wednesday that fell from year-ago results but beat Wall Street's forecasts.

Still, a cautious outlook sent shares of Cisco (CSCO, Fortune 500) down 13% Thursday.

On a conference call with analysts, Cisco CEO John Chambers said that Cisco expects its revenue to grow by just 4% to 6% in the current quarter compared to last year. That's right in line with Wall Street's estimate of 5%, according to a survey of analysts polled by Thomson Reuters.

Chambers said he expects sales to pick up soon, with revenue growth of between 8% and 11% next quarter, though that's lower than the 9% to 12% guidance he gave in the previous quarter.

Cisco's CEO gave tepid guidance during the previous quarter's conference call in November. Since then, shares have fallen 17%, though they continued to make a steady comeback until Wednesday afternoon.

The company has struggled as sales to the public sector and governments have slowed. Cisco has also found new rivals entering the networking scene, like Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500), which have added new services to help them become one-stop shops for technology customers.

Chambers said Cisco has found that its new competitors are adding to pricing pressure.

To keep up, Cisco is transitioning from the world's largest networking provider to a broader-based IT supplier, adding new consumer products to its lineup.

The company's services unit is now 21% of its business, and sales in that unit grew 18% last quarter.

But legacy businesses like routing and switching still make up 46% of the company's revenues. Routing revenue was up just 4% and switching sales fell 7% in the quarter.

"As a company, we are going through a period of transition as we move aggressively in the market with our architectural strategy," Chambers said on the call. "As I look back on this period, I wish we could have avoided it, and yet it will make us stronger in time. We have managed these market transitions many times, positioning Cisco and our customers for success."

By the numbers

During the past quarter, the San Jose, Calif., company said its net income fell to $1.5 billion, down 18% from a year earlier.

The results of Cisco's fiscal second quarter, ended January 31, included one-time charges of 10 cents per share. Without the charges, Cisco earned 37 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, had forecast earnings of 35 cents per share.

Sales rose 6% to $10.4 billion, topping analysts' forecasts of $10.2 billion.

Cisco also continued to stockpile cash, increasing its hoard to $40.2 billion, up from $39.9 billion in the previous quarter. The company announced late last year that it will begin to pay a dividend yielding between 1% and 2% in the current fiscal year, which ends in July. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,098.45 18.88 0.11%
Nasdaq 4,580.27 22.58 0.50%
S&P 500 2,003.37 6.63 0.33%
Treasuries 2.34 0.01 0.39%
Data as of 8:14am ET
Company Price Change % Change
Bank of America Corp... 16.09 0.08 0.50%
Apple Inc 102.50 0.25 0.24%
Intel Corp 34.92 0.27 0.78%
General Electric Co 25.98 -0.03 -0.12%
Cisco Systems Inc 24.99 0.14 0.56%
Data as of Aug 29

Sections

Dollar General raises bid in its takeover battle with smaller rival Dollar Tree for Family Dollar. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Xiaomi is beating Apple and Samsung in China and 'selling a dream' as it bids for world smartphone domination. More

The Coolest Cooler is the most successful Kickstarter campaign in the site's history, raising $13.3 million from over 62,000 backers. More

A scam where fraudsters impersonate IRS agents has now stolen $5 million from taxpayers, and this woman - who lost her entire life savings -- is just one of its victims. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.