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Cisco's Big Upside

A fountain is shown at the entrance to Cisco Systems headquarters in San Jose, California.
Paul Sakuma
A fountain is shown at the entrance to Cisco Systems headquarters in San Jose, California.

Cisco needed a big earnings report and the company delivered.

Cisco reported 40 cents a share against the 35 cents expected; but arguably the bigger story here is the significant beat on the topline: Cisco reported $9.8 billion versus the $9/.4 billion expected.

That's impressive and gives investors the strongest sign yet that the enterprise may finally be spending again.

Equally impressive: Cisco's $39.6 billion in cash in the bank. That's about $5 billion better than this company had just a quarter ago. Cash flow from operations jumped a cool billion dollars, to $2.5 billion from the $1.5 billion the company reported in its fiscal first quarter. While the figure is still below the $3.2 billion reported in the second quarter of last year, it's a big indication that this company is firmly on the improvement path.

All of this bodes particularly well for Cisco for the rest of the year, and that's why CEO John Chambers' comments on the call will be so important tonight.

Was this a one-time blip (unlikely), or is this the beginning of a pretty good bump in enterprise spending (far more likely.) Also, with nearly $40 billion in cash in the bank, competitors like IBM and Hewlett-Packard have to be sweating. A warchest this massive let's Cisco go wherever it wants, buy whoever it wants, develop anything it wants, and with corporate spending on the rise, Cisco's coffers will swell only more.

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Chambers, as I have mentioned before, is typically an optimistic fellow. But the language in the company's earnings report is rosier than I have seen in several quarters. Chambers says of the "outstanding" quarter, "During the quarter we saw dramatic across the board acceleration and sequential improvement in our business in almost all areas." He adds that he's "confident" that "our aggressive strategy of investing in the business during the downturn and our focus on innovation, operational excellence and productivity are driving our momentum and growth in the market."

Interestingly, Cisco's shares didn't pop or plop after the news was released. Unlike its big cap tech peers, including Intel , IBM , Google , Apple and others, the action in Cisco shares was decidedly measured and that might end up being a good sign if the company can manage to maintain its 2 percent increase after-market. It'll all come down to guidance, but Cisco doesn't merely seem to be on the road to recovery, it might even be accelerating into the fast lane.

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