Strong switching, router sales help Cisco beat estimates

Network equipment maker Cisco Systems Inc has reported higher-than-expected quarterly revenue and profit, highlighting a strong recovery in demand for its switching equipment and routers.

The company’s key server business has grappled with competition from so-called software-defined networks (SDNs), which offer software that can run on cheap hardware.

But Cisco’s new Nexus 9000 switches, which can adapt to workloads brought on by cloud computing and big data, is helping the company win back customers.

Cisco is also investing in new products such as data analytics software and cloud-management tools.

Revenue from services, which includes software and cloud offerings, rose 3.8% to $2.93 billion in the fourth quarter ended July 25. Product revenue, which includes routers and switches, rose 4% to $9.91 billion.

On an adjusted basis, the company earned 59 cents per share.

Cisco’s net income rose to $2.32 billion, or 45 cents per share, in the quarter from $2.25 billion, or 43 cents per share, a year earlier.

Revenue rose nearly 4% $12.84 billion.

Analysts on average were expecting a profit of 56 cents per share on revenue of $12.65 billion, according to Thomson Reuters I/B/E/S. 

The company is the market leader in selling network equipment to businesses, controlling about half of the $38 billion global market and overshadowing rivals Hewlett-Packard Co and China’s Huawei Technologies Co Ltd, according to market research firm Gartner.

Cisco’s latest results also underscore an ongoing recovery in sales of the company’s switches and routers, which were hit by a slowdown in spending by telecom carriers, its traditional customers, in the second half of 2014.

Needham & Co analyst Alex Henderson said the 7% rise in revenue in the Americas was a “laudable performance.” The region accounted for 61% of total sales in the fourth quarter.

“I think for the entire market – and Cisco is a microcosm of it – the international markets are the key issue.”

The company has also been investing in new products and services such as data analytics software, security and cloud-management tools.

Cisco said in June it would buy cloud-based security firm OpenDNS for $635 million.

“Cisco’s best years are ahead of us,” Chuck Robbins said on the post-earnings conference call, his first as Cisco’s chief executive. Robbins took over from veteran John Chambers in July.

The company forecast revenue growth of 2-4% for the first quarter, which translates to $12.49 billion-$12.73 billion. It forecast adjusted earnings per share of 55 cents-57 cents.

Analysts on average were expecting revenue of $12.55 billion on a profit of 56 cents per share.

For the fourth quarter, the company earned 59 cents per share on an adjusted basis, while revenue rose nearly 4% to $12.84 billion.