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Cisco Beats; Continues Tech's Rally?

AP

Cisco beat, and beat handily Wall Street expectations with its third quarter earnings, coming in at 42 cents when the Street was looking for something closer to 39 cents.

The folks over at whispernumber.com anticipated 41 cents, so Cisco managed to beat the whisper by a penny as well.

Maybe the more important news is that Cisco was able to beat on the top line as well, reporting nearly $10.4 billion against the $10.23 billion expected. Cisco's non-GAAP gross margins were 65.2 percent, better than the 64.9 percent Wall Street projected, and even better than the 65 percent that left jaws agape when Intel reported its quarterly earnings a few weeks ago. (I know shareholders love a high GM, but at what point does pricing become extortion? That's an enormous number! Kidding. Well, kind of.)

Meantime, Cisco is also reporting a cash position of $39.1 billion, down slightly from the $39.6 billion in its second quarter, but up sharply from the $35 billion Cisco reported at the conclusion of its fiscal 2009. And that's saying something, because remember that Cisco's acquisition of Tandberg closed during the third quarter, so the company was essentially able to absorb that entire deal without any real effect on its cash.

During the quarter, Cisco also bought back 87 million shares at an average price of $25.76 a share. But with such a fast-growing cash position on its balance sheet, the company might have to accelerate its plans to return some additional cash to shareholders. Cisco is also on the acquisition trail, so I'm guessing that momentum will likely heat up as well. Maybe that will come up on the call?

Cisco CEO John Chambers is known for his colorful language on the conference call, and sometimes even in company press releases, but he wasn't shy this time around: He characterized the quarter as "outstanding" and says the company actually emerged from the recession with larger market share, and stronger than when it had entered the economic downturn.

These are big numbers to be sure, and it will be interesting to see whether Cisco's strength is its own, or more reflective of a broader enterprise spending spree in the router, switch and networking communities. Along those lines, we should get some added context next week when newly minted Cisco rival Hewlett-Packard reports its earnings.

You couple Cisco's very good news with strong statements and long-term optimistic guidance earlier today and yesterday from IBM and Intel respectively, and very good commentary from Microsoft about what it's seeing from its enterprise customers, and you start to see the makings of a very good trend for tech.

Not to mention M&A activity also beginning to heat up. Hewlett-Packard's acquisition a few weeks ago of Palm for over $1 billion was certainly interesting. But today's news that SAP would be buying Sybase for over $6 billion starts to make things interesting. Lots of cash on many balance sheets, and with the business climate on the mend, some key tech stalwarts may be itching to stretch their financial legs with some big acquisitions of their own. IBM says it will spend $20 billion over the next five years on deals, a company rumored to be interested in Sybase . Wonder if SAP's play will spawn a bidding war there?

Meantime, let's get back to Cisco: Not the only, but merely the latest big cap tech star to sing the recovery tune.

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