Cisco Systems posted gains in both profit and revenue on Wednesday for its fiscal first quarter that ended Oct. 30, despite what it called "a challenging economic environment." However, the company missed its internal projection for product orders by about $500 million, largely because of weakness in Europe, the public sector and the cable set top box business.
On a conference call to discuss the results, Chairman and CEO John Chambers said Cisco had run into some surprises in the quarter, including how fast government purchases fell off, but expressed confidence in the company's overall progress. "We've got a couple of air pockets that we've hit," Chambers said. "This is minor bumps in terms of the direction where we're going to head as a company."
On the conference call, Cisco forecast revenue growth of 3 percent to 5 percent for the current quarter but predicted the full fiscal year 2011, ending in July 2011, would show revenue gains between 9 percent and 12 percent compared with the previous year. The company's long-term target for quarterly revenue gains is between 12 percent and 17 percent.
In the first quarter, Cisco's revenue hit $10.75 billion, up about 19 percent from its $9.02 billion a year earlier. Net income increased by 13 percent, reaching $1.9 billion, or $0.34 per share. Not counting certain one time items, Cisco earned $0.42 per share, surpassing the consensus forecast of $0.40 per share by analysts surveyed by Thomson Reuters.
Budget cuts hit spending in the public sector, which typically represents 22 percent of Cisco's revenue, Chambers said. The impact was felt in many parts of the world, he said. In the US, purchases by states fell significantly while local spending fell slightly, and federal purchases grew. In the cable business, where Cisco sells the set-top boxes that consumers use to connect their TVs to cable networks, Motorola gained some market share against Cisco, the company acknowledged.
Cisco also fell short with its security products, where sales fell 2 percent from a year earlier. Chambers said the company has been working on improving its security lineup over the past several months.
However, Chambers said business was good in Cisco's core businesses and some critical new categories. Router revenue increased 13 percent from a year earlier and switch revenue grew 25 percent. In the data centre product segment, where Cisco is challenging Hewlett-Packard and other big rivals with both server and networking products, revenue jumped 59 percent in the quarter.
The company's UCS (Unified Computing System) server lineup logged year-over-year growth of 550 percent, compared with a very early period in the rollout of UCS. The company now claims 2,800 customers for UCS and said more than 40 customers have bought more than $1 million worth of UCS gear.
Revenue from collaboration products rose 45 percent in the quarter. Chambers claimed he has seen a "tipping point" in CIOs' views of enterprise video collaboration over the past six months. They are recognising that video can help them improve productivity and change their business processes, he said.
Cisco said it has added about 1,900 employees to its ranks during the quarter and has hired about 600 additional sales representatives in the past two quarters.
The company's shares on the Nasdaq stock market were down $3.05 at $21.23 in after-hours trading late Wednesday. The stock had gained $0.14 during the regular trading day.