Cisco Systems’ Earnings Rise 41%
Cisco Systems Inc. reported a 41% jump in its fiscal fourth-quarter profit on higher sales of networking equipment Tuesday but warned that revenue growth would slow as customers continued to worry about the economy.
Chief Executive John Chambers said the CEOs he had talked to were “a little more cautious” than they were three months ago.
For that reason, the technology bellwether, based in San Jose, said revenue in the current quarter might grow 2% from the period just ended or stay the same, which would end a year and a half of quarter-to-quarter sales growth.
Cisco shares dropped as much as $1.18 in after-hours trading after the earnings announcement. Earlier in the day, they rose 41 cents to $20.46 on Nasdaq.
Technology stocks have wavered in the last month as companies reported generally strong earnings but offered differing views on the pace of the economic recovery. Until Tuesday, Cisco was among the most optimistic about the future.
“They had a pretty solid quarter, but they are incrementally more subdued with respect to the outlook,” said Lehman Bros. analyst Tim Luke, adding that some Wall Street revenue predictions for the current quarter had been higher.
In the quarter that ended July 31, Cisco said it earned $1.38 billion, or 20 cents a share, compared with $982 million, or 14 cents, a year earlier. Sales rose 26% to $5.93 billion. In the fiscal year, profit rose to $4.4 billion, or 62 cents, from $3.6 billion, or 50 cents. Full-year sales increased 17% to $22 billion.
Inventories at the end of the year stood at $1.2 billion, up from $873 million last year -- causing concern among some analysts that Cisco faced a product backlog. The company took a record charge for unsold inventory in 2001, when it said the telecommunications sector had crashed without warning.
Cisco’s balance sheet also took a hit, with shareholders’ equity, or Cisco’s assets minus its liabilities, falling $2.2 billion to $25.8 billion. The company said the decline was due to the repurchase of its own shares. Since September 2001, Cisco has bought back $17 billion worth of stock.
Gross profit margin slipped to 68.4% from 68.8% in the most recent three months, and Chief Financial Officer Dennis Powell predicted that figure would decline further, to between 67% and 68%, in the coming quarter. That’s in part because Cisco has begun hiring employees, sticking with a goal of adding 1,000 workers during the calendar year.
Some analysts questioned Cisco’s plans to increase spending when its customers might be paring back. “It would seem to me that things have toned down a bit. Why hasn’t Cisco also?” UBS analyst Nikos Theodosopoulos asked during a conference call with Cisco executives. Chambers made no apologies. “It’s very important we make our investments now for what’s to come three to four years out,” he said. In any case, Chambers said the fourth quarter had been “very good,” noting that orders in Russia, China and India were all up 40% or more from a year ago.
Executives also stressed progress in the company’s “advanced technologies,” which included Internet phones, storage and optical products, that now accounted for 16% of Cisco’s sales.
Yet sales of security products, which are also grouped in that category, dropped 2% from the third quarter after averaging quarter-to-quarter increases of 14% for the previous nine months.
During the conference call, Powell said Cisco would resume paying Chambers an annual salary of $350,000. Chambers had asked to be paid just $1 yearly beginning in 2001, after the company’s sales plunged and its stock dropped 75% from a high of $82.
