Cisco Suffers Slowdown Despite 20% Earnings Jump


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It was revealed on Thursday that Cisco Systems (NASDAQ: CSCO ) reported a 20% boost in 3Q earnings, despite the fact that the world's largest manufacturer of computer networking equipment fears a slowdown in technology spending.

It should be a happy time for Cisco, as it earned $2.2 billion between February and April, compared with $1.8 billion last year.

However, shares still fell 9% in premarket trading on Thursday after CEO John Chambers said that continuing economic uncertainty was affecting client spending.

Talk about snatching defeat from the jaws of victory.

It seems strange that revenue for that period was up 7% from a year ago to $11.6 billion, yet brokerages including BMO, Deutsche and Piper Jaffray were cutting the price target on CSCO stock. However, with economic trends deteriorating at an increasingly alarming rate, CSCO is concerned that it could be in for further estimate cuts as it relies heavily on government and corporate spending.

As a result of all of this, CSCO is forecasting less-than-impressive fourth quarter revenues between May and July of a 2%-5% increase, well below analyst expectations. Chambers is putting a brave face on things, saying that Cisco "will muddle through this with a little bit of bumps in the road."

That sounds really nice, but it does seem as if the well-being of Cisco is, for now, out of his hands. Chambers can only hope that consumer spending experiences an upturn soon as, until then, it is kind of floundering around. The company's telepresence sales have been seriously damaged by government spending cuts as well as cuts be businesses.

To be fair, Cisco is doing what it can to cut costs and, in the past year, has shaved $1 billion off the running costs.

Still, analysts have mixed opinions of Cisco right now. Nine analysts still rate it a "strong buy", 15 rate if a "buy", 19 rate it "hold" and two rate it "sell". That quite a broad range, which indicates that nobody really knows what is going to happen in the near future regarding sales for the company.

Shares of Cisco closed at $18.78 on Wednesday, and they were down $1.65 to $17.13 in Thursday morning premarket trading.

The next few months at Cisco will make for fascinating viewing.

Follow me @BCallwood .

(c) 2012 Benzinga does not provide investment advice. All rights reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Earnings
Referenced Stocks: CSCO

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