Cramer: Cisco Is Set for a Higher Margin Cycle
Cisco's earnings report showed an important change for the company as well as the broader economy, CNBC's Jim Cramer said Thursday, and investors can expect increased margins from the networking giant.
"This was a great quarter and there was levity on the call which I like to hear," Cramer said. "A couple things (CEO John Chambers) pointed out that I thought was interesting. He said Europe has bottomed out. State and local governments in the United States, strong. Good business from AT&T, Verizon, Time Warner and Comcast."
"This was one of these quarters where he basically said, 'listen, we're not a hardware company anymore, we're a solutions company.'" Cramer said on "Squawk on the Street."
"Solutions companies get higher margins and this is the beginning of a higher margin cycle."
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The company was early to see the economic downturn, Cramer explained, and now they foresee an upturn. "They have seen the downturn, this is them taking share, they've gotten out of some businesses that aren't that good. The gross margins are good," he said.
"This is what the beginning of a sustained move looks like. I don't know if they can sustain it, but it is what they look like."
Cisco on Wednesday reported a surprise beat in earnings and revenue in the fiscal third-quarter, suggesting the networking-gear maker's customers are spending more on technology.
"We are starting to see some good signs in the U.S. and other parts of the world which are encouraging," Chambers said in the earnings release, calling the economic landscape "slow but steady."
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With a mix of good commentary and price target raises from analysts, Cisco seems to be bucking relatively bearish analysis put out prior to earnings, Cramer said.
He pointed to a research report by JPMorgan that issued a "sell" rating on Cisco stock, which was part of setting low expectations for the quarter. Cramer broke down the assumptions in the report: "Enterprise weakness continuing in 2013? Wrong. There was no enterprise weakness. Macro headwinds? Wrong. John Chambers is saying those macro headwinds have died down. Shares vulnerable? Shares were not vulnerable."
"I've had my ups and downs with John (Chambers) but right now it's pretty good," Cramer added. "He's up, so I praise him."
For Cisco, net income in the quarter ended April 27 rose 14 percent to $2.5 billion, or 46 cents a share, from $2.17 billion, or 40 cents a share, in the year-earlier period.
Excluding items, earnings increased to 51 cents a share from 48 cents a share a year earlier.
Revenue climbed 5 percent to $12.22 billion from $11.59 billion.
Analysts had expected Cisco to report earnings excluding items of 49 cents a share on $12.18 billion in revenue, according to a consensus estimate from Thomson Reuters.
—Reuters contributed to this report
Jim Cramer's Charitable Trust owns shares of Cisco.