NEW YORK (CNN/Money) -
Cisco Systems Inc. Tuesday reported better-than-expected sales and profits for the latest quarter, a sign that the corporate pickup in technology spending is continuing.
The company also said it would add about 1,000 jobs between now and the end of the year.
But the stock dipped a bit after-hours as investors appeared to be disappointed by Cisco's sales guidance for the fiscal fourth quarter.
The San Jose, Calif.-based company, the biggest maker of equipment used to connect computers and servers to the Internet, posted net income of $1.2 billion, or 17 cents a share, for its fiscal third quarter, up 21.6 percent from $987 million, or 14 cents a share, a year earlier.
Excluding stock-based compensation expenses and other charges, Cisco's pro forma earnings were $1.4 billion, or 19 cents a share, a penny ahead of analysts' expectations of 18 cents a share, according to earnings tracker First Call.
Sales jumped 21.7 percent to $5.62 billion, coming in a shade better than the consensus estimate of $5.55 billion.
Chambers slightly more optimistic...
During a conference call with analysts, Cisco Chief Executive Officer John Chambers said that the economic "recovery continues to gain momentum on a global basis."
He also said that order growth in its U.S. corporate business (excluding sales to the government and telecom service providers) was in the mid-teens on a percentage basis sequentially. Cisco generated 46 percent of its revenues in the third quarter from the U.S.
As such, Chambers said that the company plans on hiring about 1,000 new employees by the end of the year, mainly for engineering and sales positions in the U.S.
But he was still somewhat cautious. "We are continuing to see a number of signs that we interpret with the appropriate caveats as optimistic," he said, adding that "time will tell if this momentum continues."
Chambers used nearly identical language to describe Cisco's outlook in February, when it reported its fiscal second-quarter results, as well as November, when Cisco released its first-quarter numbers.
Shares of Cisco (CSCO: Research, Estimates) gained 63 cents, or 2.9 percent, to $22.25 in regular trading on Nasdaq Tuesday. The stock has fallen nearly 10 percent so far this year, however, after soaring 85 percent in 2003.
...but inventory build is a concern to some
Still, despite the strong report and slightly more optimistic tone, shares slipped more than 2 percent after hours once the company finally gave its eagerly awaited sales guidance for the fiscal fourth quarter. (Cisco dragged it out, waiting about 45 minutes into the call before announcing the guidance.)
Chambers said that sales should increase about 3 percent to 5 percent sequentially. That implies a range of about $5.79 billion to $5.9 billion. While that's ahead of analysts predictions of $5.76 billion, it seems that investors were hoping for a bigger sequential increase.
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Cisco does not typically comment on earnings targets. All the company would say is that net income, based on generally accepted accounting principles (GAAP) would be about 1 cent to 2 cents lower than pro forma earnings. The First Call consensus for pro forma earnings is 19 cents per share.
Investors may have also been slightly worried by rising inventories. Cisco's inventories were $1.12 billion, a more than 20 percent increase from the second quarter. Erik Suppiger, an analyst with Pacific Growth Equities, said that this was one small red flag.
Rising inventories at Intel, the world's largest semiconductor manufacturer, in the first quarter have spooked some investors, who are concerned about what may happen if corporate tech demand is not robust enough going forward to justify the recent inventory buildup.
But Drake Johnstone, an analyst with Davenport & Co., said it was encouraging to note that Cisco's widely watched gross margins, a measure of how profitable the company is after subtracting the cost of sales, were 68.8 percent, up from 68.5 percent in Cisco's fiscal second quarter.
Johnstone said he was expecting Cisco's gross margins to drop to about 68 percent, based on similar declines reported by Cisco's competitors.
Cisco remains flush with cash as well. The company generated $2.4 billion in cash flow from operations in the quarter and finished the quarter with $18.9 billion in cash and investments on its balance sheet. That's down from $19.8 billion at the end of the second quarter but Cisco spent $3 billion during the third quarter to repurchase stock.
Analysts quoted in this piece do not own shares of Cisco and their firms have no investment banking ties to the company.
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