Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Cisco Earnings Beat Estimates, but Only by a Little

Cisco Systems reported earnings that slightly beat the revised estimates of analysts for its fiscal second quarter. The company reported earnings of 37 cents per share on sales of $10.4 billion. The results slightly beat the consensus of analysts. Thomson Financial had forecast earnings of 35 cents a share on revenue of $10.24 billion. Shares in Cisco fell more than one percent in after-hours trading.

CEO John Chambers said in a company statement that the quarter “played out as we expected” and that the company is “going through a period of transition as we move aggressively in the market with our architectural strategy….Simply put, we are owning our evolution and the next generation of industry leadership.”

That’s a change from the “air pockets” phrase Chambers used to describe the surprise downward in Cisco’s guidance when it last reported earnings in November, and the stock has yet to recover from the drop that resulted. More as I go through the numbers.

4:38 pm: Chambers: Our routing architecture is in the best shape in its history.

Chambers: We are in the middle of a major product transition with dramatically higher price performance advantages. With this in mind we did see our switching revenue decline 7 percent.

4:41 pm: Chambers: We are seeing pricing pressures on our Catalyst portfolio. This is where our competitors are targeting us and this is where we intend to own our evolution.

We are moving very aggressively to prevent any future erosion of our product share.

Services revenue increase 18 percent year over year.

International bookings are okay. Italy was the only country to see a fall.

Enterprise solid. Grew 10 percent year over year. Public sector grew 7 percent. U.S. public sector orders grew 9 percent. [He thinks orders will worsen in this sector in the coming quarters.]

Set-top business declined.

4:44 pm: Initial customer and industry feedback to Videoscape is being received well

4:45 pm: Chambers: There were a number of areas where we are pleased with our progress.

Guidance coming up.

4:47 pm: Q3 revenue 4 to 6 percent year over year.

Q4: 8-11 percent increase year over year.

4:48 pm: As I look, stock is now trading down nearly 4 percent after-hours.

Frank Calderoni, Cisco CFO is now on the call.

Calderoni: There are multiple product transitions in areas such as switching, which, although expected, are happening faster than expected.

4:56 pm: Cash and equivalents: $40.2 billion. Cash flow from operations: $2.6 billion

4:58 pm: Calderoni says Cisco would issue a dividend in fiscal 2011 with a yield in the 1 to 2 percent range.

4:58 pm: Shares now down about 6 percent.

More guidance coming up from Calderoni.

5:00 pm: Q3, we exepect revenue growth of 4 to 6 percent year on year.

That’s with one less week this year than last year.

Q3 we expect non-GAAP operation 23 to 24 percent

EPS 35 to 38 cents per share.

In Q4 we expect 8 to 11 percent growth in revenue year over year.

FY11 will be mid to lower end of 9 to 12 percent given in previous guidance.

5:03 pm: John Chambers is back on the call.

Enterprise orders growth good. Grew high 20 percent range.

Shares are down 9 percent on that “lower range” guidance for the full year.

We believe we are not losing market share with developed-world governments.

This growth will be severely challenged in the next several quarters, and will grow in the low single digit.

5:11 pm: We believe the growth in enterprise will balance out the challenges in government business.

5:12 pm: Decrease in gross margins was affected by several factors.

He says the company has started something called a working group to study the decline in gross margins. What does that mean?

5:17 pm: Shares are within sight of trading down 10 percent after hours.

5:18 pm: Chambers: I think we will look back on this period of time and wish we could have avoided it, but it will make us stronger.

Q&A about to start. Should be interesting.

5:20 pm: Chambers: Bookings were comfortably above the revenues. In terms of momentum in switching I would expect them to be positive.

5:39 pm: Chambers is now talking about tax policy. Echoing a point he’s made repeatedly about bringing cash that’s held overseas into the U.S. He think the taxes are too high.

5:39 pm: Cash in the U.S. is $3.1 billion versus total cash holdings of more than $40 billion. Calderoni is talking about the $3 billion debt offering. He said Cisco has about $3 billion in long term debt that’s coming due soon, and that the debt it’s issuing will carry a lower rate.

I’m going to close this early because I have to make another meeting. I’ll be posting more on Cisco earnings shortly.


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— Ryan Chittum, writing in the Columbia Journalism Review about the promise of Pierre Omidyar’s new media venture with Glenn Greenwald