Cisco gives bullish revenue forecast due to software shift

Cisco Systems Inc. gave a strong forecast for the current quarter, signaling confidence that corporations are continuing to spend on the company’s computer networks.

Sales in the fiscal third quarter will increase 4 percent to 6 percent from the same period a year earlier, the San Jose, California-based company said Wednesday in a statement. That indicates revenue of as much as $12.97 billion, compared with an analysts’ average estimate of $12.83 billion.

The upbeat report shows that new software and services, along with updated versions of Cisco’s existing hardware, are winning orders from companies wanting to retool their computer networks. Chief Executive Officer Chuck Robbins has returned the largest maker of networking gear to growth. The second quarter was the company’s fifth consecutive period of year-over-year expansion. Robbins is trying to wean Cisco off its dependence on combinations of high-priced hardware and software and make it more of a technology services company, trying to align his products more closely with customers’ changing networking demands.

Robbins said he was surprised that the worsening economic and geopolitical environment hasn’t had a negative impact. His customers’ continued appetite for Cisco’s products shows how important the latest network technology has become for companies trying to expand their businesses, he said.

“The order flow momentum didn’t change at all,” he said in a telephone interview. “Our teams are executing so well and yet there’s so much external stuff that seems to be trying to keep that from occurring.”

Cisco shares rose more than 3 percent in extended trading following the earnings announcement. The stock, which gained 13 percent last year while avoiding a broader sell-off in technology companies, earlier closed at $47.50 in New York.

The company’s applications division posted a 24 percent increase in revenue in the quarter, security jumped 18 percent and the main hardware unit grew 6 percent, the company said. By region, sales from Europe Middle East and Africa rose 8 percent, Americas increased 7 percent and Asia Pacific gained 5 percent.

While it’s new businesses a growing more quickly, Cisco’s hardware unit still supplies 57 percent of total revenue. Strong sales of the company’s Catalyst 9000 switches helped boost that business.

Cisco’s status as the biggest maker of gear used to connect computers makes its earnings a broad indicator of corporate spending plans. Unlike many other U.S. hardware makers, the company gets a tiny percentage of sales in China where it’s been largely locked out of the market. That means it may gain from the U.S. government’s actions to discourage purchases of equipment from one of its biggest rivals, Huawei Technologies Co. Cisco may be able to pick up orders where the Chinese company is being excluded on security concerns, some analysts have said.

In the fiscal second quarter, net income was $2.8 billion, or 63 cents a share, compared with a loss a year earlier. Revenue rose 4.7 percent to $12.4 billion.

In the period ended Jan. 26, Cisco reported adjusted profit of 73 cents a share. That compares with the average analyst estimate of 72 cents.

Adjusted profit will be 76 cents to 78 cents a share in the period ending April, the company said. Analysts predicted 76 cents, according to estimates compiled by Bloomberg.

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Cisco gives bullish revenue forecast due to software shift