Cisco Systems Reports Lower Revenue, Profit -- 3rd Update

By Dow Jones Business News, 
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By Anna Prior

Cisco Systems Inc. reported year-over-year declines in third-quarter revenue and earnings, but shares rose in after-hours trading as results surpassed its expectations.

The Silicon Valley network-equipment giant, which is seen as a bellwether for corporate technology spending, posted a 12% decline in third-quarter net income and a 5.5% drop in revenue for the fiscal third quarter, both better than the muted forecast the company had issued in February.

For its current fourth quarter, Cisco projected another decline in revenue, between 1% and 3%, but that was better than the 5% drop forecasted on average by analysts, according to Thomson Reuters. The company also expects per-share earnings, excluding certain costs, between 51 cents and 53 cents; analysts were at 51 cents.

Shares, up 1.7% this year, jumped in recent after-hours trading, rising 6.5% to $24.30.

Cisco, which supplies routers and switching gear that funnel traffic on corporate campuses and over the Internet, recently has built up a fast-growing line of servers. But the company signaled last year that it expected business to slow and said it was moving to trim some 4,000 jobs, or 5% of its workforce. Cisco also has warned that it has seen weak demand in China, Brazil, Mexico, India and Russia.

Still, the company recently predicted that a broad technology trend of connecting everyday products to the Internet-- which Cisco calls the Internet of Everything--would begin to lift Cisco's business soon.

For the quarter ended April 26, Cisco reported a profit of $2.18 billion, or 42 cents a share, down from $2.48 billion, or 46 cents a share, a year earlier. Excluding stock-based compensation, acquisition-related costs and other items, adjusted per-share profit was flat at 51 cents.

Revenue fell to $11.55 billion from $12.22 billion.

In February, the company projected an adjusted profit of 47 cents to 49 cents a share on a revenue decline of 6% to 8%. The company said then that it faced issues such as a slowdown in orders from emerging economies and "product transition" issues, as customers held up purchases to evaluate new switching and routing equipment.

Product revenue dropped 7.7% in the third quarter to $8.82 billion, while service revenue increased 2.6% to $2.73 billion.

Gross margin narrowed to 60.7% from 61.5%.

Write to Anna Prior at anna.prior@wsj.com

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