Cisco beats, but warns in outlook

And then after hours Cicso reported third quarter numbers. Remember how disappointed we were last quarter when their margins were crimped, that was all the focus last time. This time there was an earnings beat, but the outlook was a little dimmer than most anticipated. CEO John Chambers was fairly upbeat that margins were improving and that most of their business strategy's were starting to deliver. He had this to say in the results release: "We have acknowledged our challenges. We know what we have to do. We have a clear game plan, and we are a company with a track record of market-shaping innovation." Chambers has a deep southern accent, reminiscent of Forest Gump, and that is no compliment.



I think already what a lot of people will miss is that this quarter is 13 weeks when compared to the 14 weeks of the corresponding quarter last year. I wonder why? Leap year last year? Nope, that was 2008 and then next time is 2012. Holy smokes. "Cash and cash equivalents and investments were $43.4 billion at the end of the third quarter of fiscal 2011, compared with $40.2 billion at the end of the second quarter of fiscal 2011, and compared with $39.9 billion at the end of fiscal 2010." After a few acquisitions in the quarter too. And remember for the first time last quarter a dividend of 6 US cents was implemented.



Clearly the outlook which suggested that earnings would be about flat and revenue growth tepid at best. And Cisco are embarking along the path of shedding a whole lot of jobs in an effort to cut 1 billion USD per annum. They are going to be offering early retirement to staff in an attempt to eliminate a few thousand jobs. Cost cutting is always a painful exercise and often tell you of where the company is exactly in their business cycle.




The share price pre market in New York is down around three and a third of a percent to 17.17 currently. Which is hardly encouraging. But, the one analyst note that I have seen already seems to agree with John Chambers for a change. EPS for the full year to 2013 is expected to be just shy of 160 cents. EBIDTA margins have bottomed and should grow from here. The implementation of a dividend tells me that the company has moved to a different phase. And will continue to move forward no doubt with the dividend policy. But what about the share price? Well, the same note suggested that 21 Dollars was their 12 month target price. Which implies decent upside from here.



The new products business is growing strongly, government in the US might not be spending but ex them the Enterprise business grew strongly (12 percent). Asia Pacific is growing strongly (14 percent) and now represents 15 percent of total sales. Emerging markets represent another 12 odd percent with the US still being around 55 percent of all their business. Europe represents the balance, so there is still strong focus on the developed world, but as you can see, becoming less of an American company. If you want to have a look at the results presentation where I have drawn some of this information from, then download the Q3 Fiscal Year 2011 Conference Call. For the time being we are slightly happier, although it could have been much better.