Cisco Systems (
reported second quarter 2013 earnings of 47 cents share, beating
the Zacks Consensus Estimate of 43 cents on higher revenues and
lower-than-expected operating expenses. The adjusted earnings per
share exclude one-time items, but include stock-based
Revenues increased 5.2% year over year and 1.7% sequentially
to $12.1 billion. Products (78.0% of total revenue) were up 3.3%
year over year to $9.4 billion. Services (22.0% of total revenue)
jumped 12.5% year over year to $2.7 billion.
Revenues grew year over year across most of the geographies.
The Americas region increased 9% year over year, while
Asia-Pacific, Japan and China collectively known as APJC surged
8.0% from the year-ago quarter. Europe, Middle East and Africa
(EMEA) declined 5% on a year over year basis due to continued
macroeconomic challenges in Europe.
Product Revenues by Category
NGN Routing (16.1% of total revenue), Collaboration (7.8% of
total revenue) and Other Product (1.6% of total revenue) segment
revenues declined 6.0%, 11.0% and 29.0% year over year,
However, this decline was fully offset by strong performances
from Switching (30.8% of total revenues), Service Provider Video
(10.0% of total revenue), Data Center (4.5% to total revenue),
Wireless (4.3% of total revenue), Security (2.8% of total
revenue), and Service (22.0% of total revenue) segments, which
increased 3.0%, 20.0%, 65.0%, 27.0%, 1.0% and 10.0%,
Cisco's total product orders in the quarter remained flat year
over year. The APJC region saw the strongest growth at 3%, with
the Americas growing 2% and EMEA declining 6% from the year-ago
quarter (consistent with broad market trends).
In the APJC region, India again witnessed a growth of over
50%, Japan was up in the mid-single digits, while China was down
approximately 4% from the year-ago quarter.
Reported gross margin for the quarter was 60.7%, down 80 basis
points (bps) from 61.5% in the comparable year-ago quarter due to
an unfavorable product mix.
Cisco's operating expenses of $4.4 billion were 4.0% higher
than $4.2 billion incurred in the year-ago quarter. Research and
development and general and administrative costs were both up as
a percentage of sales from the year-ago quarters, while sales and
marketing expense declined. The net result was an operating
margin of 23.0%, down 70 bps year over year from 23.7% in the
On a fully diluted GAAP basis, Cisco recorded a net profit of
$3.14 billion or 59 cents per share compared with $2.18 million
or 40 cents per share in the year-ago quarter. On a pro forma
basis, Cisco generated adjusted net profit of $2.51 billion or
earnings per share of 47 cents per share in the last quarter
compared with $2.31 billion or 43 cents in the year ago
Our pro forma figure excludes certain one-time items but
includes stock-based compensation expenses.
Cisco ended with cash and investments balance of $46.4
billion, down $2.3 billion during the quarter. Trade receivables
were$4.46 billion, up from $3.94 billion in the prior
The company generated operating cash flow of over $3 billion
and spent $1.2 billion on share repurchases and dividends.
For third quarter of fiscal 2013, Cisco expects revenues to
increase in the range of 4% to 6% on a year-over-year basis.
Non-GAAP gross margin is expected to be 61-62% and non-GAAP
operating margin is expected to be 26.5-27.5% of revenues. The
company expects a non-GAAP tax rate of 21%, yielding non-GAAP
earnings of 48 to 50 cents per share.
Cisco reported strong second quarter results and its outlook
remains positive. However, a sluggish macro-environment is the
primary headwind going forward.
It is apparent that Cisco's focus on various growth businesses
including cloud computing, mobile, data center, and others is
paying off. Additionally, Cisco's strategy of pursuing growth
opportunities in international markets has helped to deliver
positive results. Cisco is already the best entrenched company
across the world and despite growing competition from several
smaller players, the company appears to be holding its own.
Additionally, the focus on new products and various
acquisitions resulted in continued market share gains in the last
quarter. Order growth in the last quarter was quite encouraging
and the trend is reflective of Cisco's superior strategy and
Of course, competitors like
Hewlett Packard Company (
and the Chinese company Huawei have manufacturing operations in
low-cost countries, which make them more competitive. They are
also interested in sacrificing margins for market share gains.
This remains a major concern for Cisco in the near term.
Currently, Cisco shares carry a Zacks Rank #2 (Buy). Other
stocks in the sector that have been performing well and are worth
a look include
), both with a Zacks Rank #2 (Buy).
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