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Cisco Systems sees 'second phase' of economic recovery as sales rise

February 3, 2010 |  4:00 pm

The economic recovery may have found its chief cheerleader. And he lives in Silicon Valley -- not Washington.

John Chambers, chief executive of computer networking giant Cisco Systems Inc., lauded the recovery in his statement accompanying the firm's fiscal second-quarter earnings report Wednesday.

"Our outstanding Q2 results exceeded our expectations and we believe they provide a clear indication that we are entering the second phase of the economic recovery,” Chambers said. “During the quarter we saw dramatic across the board acceleration and sequential improvement in our business in almost all areas."

Cisco’s worldwide sales of routers, switches and other networking equipment rose to $9.82 billion in the quarter ended Jan. 23, up 8% from a year earlier and well ahead of analysts’ mean estimate of $9.4 billion, according to Bloomberg News data.

Johnchambers The San Jose company also said it expected sales in the current quarter to rise as much as 26% from a year earlier, also exceeding Wall Street expectations.

Cisco said it earned $1.85 billion, or 32 cents a share, last quarter, up 23% from $1.5 billion, or 26 cents, a year earlier.

Using another measure of earnings that excludes stock option costs and certain other expenses, Cisco earned 40 cents a share in the quarter. Analysts had expected the company to post profit of 35 cents on that basis, according to Bloomberg data.

Cisco is benefiting as companies worldwide upgrade their computer networks to handle increasing amounts of data, including video. The company said it expected to hire 2,000 to 3,000 workers over the next several quarters to keep up with rising demand. Its global headcount currently is about 66,000.

The technology sector has been a particular bright spot in the latest batch of earnings reports, suggesting that capital spending -- a critical component of the recovery -- was picking up at a brisk pace.

Through Friday, 98% of the tech companies in the Standard & Poor’s 500 index that had reported quarterly results had beaten analysts’ estimates, and the sector’s results overall were 25% above estimates, according to Thomson Reuters. Historically, that’s a spectacular surprise factor.

Yet despite those results, investors have been in a mood to take profits after the surge in tech stocks last year. The average S&P 500 tech issue is down 6.1% year to date, compared with a 1.6% decline for the index overall.

Cisco’s shares edged up 5 cents to $23.07 in trading before the earnings report Wednesday, then jumped to $23.91 after hours. They’re still off from their recent 52-week high of $24.95 on Jan. 14.

The stock’s price-to-earnings ratio is about 17 based on analysts’ mean earnings estimate of $1.44 a share for the fiscal year ending in July.

-- Tom Petruno

Photo: Cisco CEO John Chambers. Credit: Alessandro Della Bella / European Pressphoto Agency

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