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Cisco Beats Street's Earnings Estimates, Boosts Dividend

CNBC.com with Reuters
Wednesday, 8 Feb 2012 | 7:52 PM ET

Cisco Systemsreported quarterly earnings and revenue thatbeat analysts' expectations Wednesday as its restructuring effort appears to finally be paying off. The company also announced plans to raise its dividend.

AP

The computer networking giant posted fiscal second-quarter earnings excluding items of 47 cents per share, up from 37 cents per share in the year-earlier period.

Net income grew to $2.2 billion from $1.5 billion last year.

Revenue was $11.5 billion, a 10-percentincrease from $10.41billion a year ago.

Analysts had expected the company to report earnings excluding items of 43 centsa share on $11.23 billion in revenue.

Cisco's better-than-expected revenue growth was from more than "routing and switching," CEO John Chamberstold CNBC Wednesday, it was also data centers, cloud computing and $1 billion in cost-cutting measures.

Cisco's Chambers Explains Earnings
John Chambers, Cisco chairman & CEO, discusses how Cisco is navigating challenges in this tough environment including Europe's debt crisis and last year's flooding in Thailand: "We're a little more optimistic about Europe," he says.

"It goes way beyond routing and switching, which was also good. It goes into collaboration, it goes into cloud, data centers and architecture," Chambers said after Cisco's earnings and revenue handily beat analyst expectations. "So we were pleased with the quarter. It’s a journey but it was a good start."

The company also said it plans to pay a quarterly dividend of eight cents per common share, up 2 cents from the previous quarter.

"It's a nice upside surprise," said Joanna Makris, an analyst at Mizuho Securities. "Broadly speaking, people expected a good quarter. This is probably a little better than expected and the dividend is an added surprise."

It was almost a year ago that 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, claiming 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.

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.

After the earnings announcement, the company's shares rose 3percent in extended trading. (Click here to get after-hour quotes for Cisco.)

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