Network equipment maker Cisco Systems Inc 's restructuring is paying off, allowing the company to promise further revenue growth and hike its quarterly dividend after its second quarter results beat estimates.
It was almost a year ago that Cisco Chief Executive John Chambers acknowledged the company had lost its way after disappointing investors for several quarters with bleak outlooks and profit warnings.
But Chambers, who has led the company for 17 years, finally scaled back on consumer businesses and laid off thousands in a sweeping overhaul, aiming to cut expenses by $1 billion.
“We achieved our goal of $1 billion expense reductions measured from a quarterly run rate perspective in the second quarter one quarter earlier than our stated goals,” Chambers said on a call with analysts on Wednesday.
Now, Cisco - a sector bellwether because of its global scale and diverse client base - forecast 5 to 7 percent growth in fiscal third-quarter revenue, unlike its rivals which expected no growth.
That translates into a sales outlook of $11.4 billion to $11.6 billion, matching or slightly exceeding Wall Street's average forecast of $11.46 billion.
Executives also forecast gross margins of 61.5 to 62 percent in the fiscal third quarter ending April.
Juniper Networks, a rival in the router market, gave a gloomy outlook for its first quarter, raising concerns that tech spending especially among service providers would remain soft.
Cisco, however, said revenue from telecom carriers grew 12 percent in the past three months to end-January.
“We are coming in the sweet spot,” Chambers said.
“It doesn't matter if you're talking to Time Warner or Verizon, AT&T, Sprint, Deutsche Telekom, British Telecom, Telefonica, China mobile, Telstra, all of which we had in the last month at multiple levels,” he added.
Cisco's business grew in all of its customer segments in its second quarter with the exception of the public sector, which was down 1 percent. Chambers said he expected the public sector to remain tough.
ADDED SURPRISE
Second quarter revenue rose 10.6 percent from the year-ago period to $11.5 billion. Analysts on average were expecting $11.23 billion.
Net income grew to $2.2 billion, or 40 cents per share, from $1.5 billion, or 27 cents per share, a year earlier.
Excluding items, earnings were 47 cents per share, beating the average estimate of 43 cents a share, as compiled by Thomson Reuters I/B/E/S.
Cisco said on Wednesday it plans to pay a quarterly dividend of $0.08 per common share, up 2 cents from the previous quarter.
“Broadly speaking, people expected a good quarter. This is probably a little better than expected and the dividend is an added surprise,” said Mizuho Securities analyst Joanna Makris.
Cisco's core business is routers and switches, which direct Internet traffic, but the company has also focused on data centers, enabling and providing cloud computing technology and video platforms.
Chambers also promised to get back on the acquisition path this year.
“Over the last year, we curtailed our M&A activity to a large extent as we worked hard to refocus. ... We expect to be more active with acquisitions in the quarters and years to come.”
He added that Cisco had built up a cash balance because it was easy to buy a small company with cash.
“In terms of our size, we believe you partner big to big. You acquire big to small. That's how we approach the market in terms of direction,” Chambers said.
Cisco stock was down 0.39 percent in extended trading after closing at $20.43 on Wednesday. - Reuters