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Cisco Stock Jumps 10% On Q2, But Uncertainties Weigh As U.S. Slows

Cisco Systems ( CSCO ) stock vaulted up 10% in afternoon trading Thursday on the heels of a well-received Q2 report Wednesday afternoon that showed China growth strong for the networking products maker, even as the U.S. fell. The analysts lining up Thursday to pat Cisco on the back for improving performance belied some weakness that they and Cisco both acknowledged, like falling revenue from its No. 1 line of business, switches for big telecoms, data centers and local area networks (LANs). Pacific Crest rates Cisco overweight, and William Blair has it at outperform, like Bernstein. Jefferies has upgraded Cisco to a buy, but Needham calls it a hold, and Nomura stands neutral. “There’s certainly a lot of uncertainty out there,” Cisco CEO Chuck Robbins told analysts after disclosing fiscal Q2 earnings and sales that beat Wall Street views , along with current-quarter guidance that also beat the Street. Even Jefferies analyst George Notter hung his upgrade not merely on Cisco’s strength. “With the recent swoon in the share price, we think the risk/reward is attractive, and we’re upgrading the name to a buy,” he wrote in a research note issued before Cisco trading opened with a 9.1% jump in the stock market today . Cisco was one of the few big ups in a down market Thursday morning. Rival Juniper Networks ( JNPR ) slipped before noon but was up fractionally in afternoon trading. “Our (Cisco) upgrade is driven, in part, by our view that the downside in the stock is limited,” Notter said. “We realize this is a counter-intuitive point of view in the current environment. Key elements of this perspective: 1) the stock is trading at historically cheap levels (at) 6.4 times our base business 2017 EPS projection; 2) we believe the company — in the event of a more significant macroeconomic slowdown — will protect earnings power by managing their cost structure aggressively; 3) the dividend increase — just raised with last night’s EPS conference call — also helps set a floor for the stock; 4) our concerns about the company’s BRIC-M (Brazil, Russia, India, China and Mexico) exposure are reduced — the January results showed growth in these areas of the world; and 5) the risk around the January EPS print is behind us.” Cisco’s biggest line of business, switching, fell 4% year over year in the fiscal second quarter, ended Jan. 23. The BRIC-M exposure — especially in China, where economic growth has slowed and stock markets have dragged down global equities — stood out from Cisco’s post-earnings conference call Wednesday night. CEO Robbins said business had picked up in China in January at the same time customers elsewhere were delaying deals. “Perhaps one of the biggest surprises in the quarter was continued strength within China and India, which contributed to a continued recovery in Asia-Pacific, Japan and China (APJC), which increased by 10% year over year,” said Pacific Crest analyst Brent Bracelin in a research note. “This was the highest growth rate Cisco has witnessed in this region in more than two years.” Robbins told the analysts that APJC was in “recovery” and that in China, “as we navigated our way through the last three years, the team did a great job. They diversified our business strategy across segments,” including enterprise and commercial, and expanded into urban markets smaller than China’s largest cities where it initially gained a toehold against Chinese telecom tech giant Huawei. APJC revenue grew 10% year to year and 7% sequentially in fiscal Q2, Cisco said. In the Americas, quarterly sales fell 3% from a year before and 11% from fiscal Q1. Sales were flat by both measures in Europe, the Middle East and Africa (EMEA). The Americas typically account for about 60% of Cisco revenue, APJC about 15% and EMEA 25%. By segment, Cisco said service provider video revenue (without the recently sold TV set-top box business) rose the most year to year in Q2, by 37% to $569 million, followed by 11% growth in security to $462 million; 5% in next-generation network routing to $1.845 billion; 3% growth in collaboration to $1.019 billion; no growth in wireless at $613 million; 3% shrinkage in data center revenue to $822 million; and 4% shrinkage in its largest segment, switching, to $3.483 billion. Excluding the set-top box business, total revenue grew 2% to $11.834 billion. Q2 earnings per share rose 7.5% to 57 cents. Analysts polled by Thomson Reuters had expected 54 cent EPS ex items on revenue of $11.75 billion. For fiscal Q3, Cisco guided to EPS minus items of 54 cents to 56 cents on revenue up 1% to 4%. Analysts estimated 54 cents on a 0.8% decline in sales.

Cisco’s Steady Q2 Helps, But Enterprise IT Sector Still Jittery

Behind the scenes, Cisco Systems ( CSCO ) did what it was supposed to do last quarter, and did it a little more profitably: It provided reliable networking gear and helped others compute and communicate faster, even as formerly highflying enterprise technology stocks crashed. After Wednesday’s close, Cisco posted fiscal Q2 earnings and sales that beat analyst expectations, as did its earnings and sales outlook for the current quarter. The company’s CEO, however, acknowledged that things have been a bit dicey. While the first 10 weeks of the second quarter, through Dec. 31, were “very much in line with what we expected … (in) those last three weeks (through Jan. 23), we saw customers just pause a bit … to see what’s going on,” Cisco CEO Chuck Robbins said on the company’s earnings conference call with analysts. “The (data center) campus refresh activities, we saw customer say, ‘Hey, our infrastructure is working. Let’s hold on that (purchase) before we see which way we’re willing to go.’ ” Added CFO Kelly Kramer: “Our guidance is prudent. We expanded our range to three (percentage) points of range rather than two, because we see things as more volatile.” For the period ended Jan. 23, Cisco said per-share earnings minus items rose 7.5% from the year-earlier quarter to 57 cents minus items, while revenue slipped 1% to $11.8 billion. Excluding year-earlier performance from the television set-top box business Cisco recently sold, revenue rose 2% . Analysts polled by Thomson Reuters had expected 54 cents and $11.75 billion. A year before, Cisco’s EPS ex items had risen 13% to 53 cents, and sales grew 7% to $11.94 billion. Cisco completed the sale of its set-top box unit to Technicolor on Nov. 20, for $600 million. Excluding that business, Cisco had guided Q2 adjusted EPS to 53-55 cents, on revenue of flat-to-2% growth. For fiscal Q3, Cisco guided to EPS ex items of 54 cents to 56 cents and to a year-over-year revenue rise of 1% to 4%. Analysts had modeled 54 cents and a 0.8% decline. Cisco is the No. 1 maker of the seldom-seen but increasingly used, lightning-fast switches, routers and other networking gear behind most telecom and Internet service providers, helping to run many data centers for many Internet cloud-based operations. Cisco stock, which rose 9% in after-hours trading Wednesday after its earnings release, was up more than 9% in early trading in the stock market today , near 24.50, despite another tough start to the market overall amid global economic worries. In Wednesday’s regular session, shares fell 0.6% to 22.51, 25% off an eight-year high of 30.31, set last March. Smaller rival Juniper Networks ( JNPR ) was up nearly 1% in early trading Thursday. Cisco’s latest results helped the outlook for information technology stocks, which crashed last week after data analytics software maker  Tableau Software ( DATA ) and social media firm LinkedIn ( LNKD ) gave disappointing guidance. As global fears of a slowing economy rose, so did worries of slower IT spending. Analytics firm Splunk ( SPLK ), security vendor  Palo Alto Networks ( PANW ) and cloud software leader Salesforce.com ( CRM ) were among stocks that fell hard last week, though the latter two have recovered somewhat this week. All three stocks, however, were down in early trading Thursday, as was Tableau. Cisco: Challenging Macroenvironment “We delivered a strong Q2 and are managing the business extremely well in a challenging macro environment,” Robbins said in the company’s earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term, while investing in the innovation to lead our customers into the future.” As with the sale of its set-top box business, Cisco has been shedding slow-growth lines of business while making acquisitions in faster-growing arenas. Last week, Cisco announced its agreement to acquire Jasper Technologies, which delivers a cloud-based Internet of Things (Iot) service platform, for $1.4 billion.  The deal is expected to close this fiscal quarter. The company last quarter also completed the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist;  and 1 Mainstream, an on-demand streaming-content company. And on the call, Cisco executives said they recently completed the acquisition of Acano to help accelerate Cisco’s collaboration strategy to deliver video more broadly. In November, Cisco entered a “strategic partnership” with Ericsson ( ERIC ) which both companies say will improve their sales by the second half of this fiscal year. Robbins told analysts that Cisco and Ericsson “have begun to close transactions together. I would not translate that to any of the numbers we put out today. … We’re at the handful stage right now, but we see that accelerating.” “We delivered a strong Q2, and are managing the business extremely well in a challenging macro environment,” Cisco CEO Chuck Robbins said in the earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term while investing in the innovation to lead our customers into the future.”  

Cisco’s Steady Q2 Helps Soothe Jittery Enterprise IT Sector

Behind the scenes, Cisco Systems ( CSCO ) did what it was supposed to do last quarter, and did it a little more profitably: It provided reliable networking gear and helped others compute and communicate faster, even as formerly highflying enterprise technology stocks crashed. After Wednesday’s close, Cisco posted fiscal Q2 earnings and sales that beat analyst expectations, as did its earnings and sales outlook for the current quarter. The company’s CEO, however, acknowledged that things have been a bit dicey. While the first 10 weeks of the second quarter, through Dec. 31, were “very much in line with what we expected … (in) those last three weeks (through Jan. 23), we saw customers just pause a bit … to see what’s going on,” Cisco CEO Chuck Robbins said on the company’s earnings conference call with analysts. “The (data center) campus refresh activities, we saw customer say, ‘Hey, our infrastructure is working. Let’s hold on that (purchase) before we see which way we’re willing to go.’ ” Added CFO Kelly Kramer: “Our guidance is prudent. We expanded our range to three (percentage) points of range rather than two, because we see things as more volatile.” For the period ended Jan. 23, Cisco said per-share earnings minus items rose 7.5% from the year-earlier quarter to 57 cents minus items, while revenue slipped 1% to $11.8 billion. Excluding year-earlier performance from the television set-top box business Cisco recently sold, revenue rose 2% . Analysts polled by Thomson Reuters had expected 54 cents and $11.75 billion. A year before, Cisco’s EPS ex items had risen 13% to 53 cents, and sales grew 7% to $11.94 billion. Cisco completed the sale of its Technicolor set-top box unit on Nov. 20, for $600 million. Excluding that business, Cisco had guided Q2 adjusted EPS to 53-55 cents, on revenue of flat-to-2% growth. For fiscal Q3, Cisco guided to EPS ex items of 54 cents to 56 cents and to a year-over-year revenue rise of 1% to 4%. Analysts had modeled 54 cents and a 0.8% decline. Cisco is the No. 1 maker of the seldom-seen but increasingly used, lightning-fast switches, routers and other networking gear behind most telecom and Internet service providers, helping to run many data centers for many Internet cloud-based operations. Cisco stock was up 9% in after-hours trading, after the company released its earnings. In Wednesday’s regular session, shares fell 0.6% to 22.51, 25% off an eight-year high of 30.31, set last March. Smaller rival Juniper Networks ( JNPR ) was up 1.5% after hours, having fallen 1.7% to 21.62  in Wednesday’s regular session. Cisco’s latest results helped the outlook for information technology stocks, which crashed last week after data analytics software maker  Tableau Software ( DATA ) and social media firm LinkedIn ( LNKD ) gave disappointing guidance. As global fears of a slowing economy rose, so did worries of slower IT spending. Analytics firm Splunk ( SPLK ), security vendor  Palo Alto Networks ( PANW ) and cloud software leader Salesforce.com ( CRM ) were among stocks that fell hard last week, though the latter two have recovered somewhat this week. Splunk and Palo Alto were up a fraction after hours Wednesday, but Tableau and Salesforce were down a fraction. Cisco: Challenging Macroenvironment “We delivered a strong Q2 and are managing the business extremely well in a challenging macro environment,” Robbins said in the company’s earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term, while investing in the innovation to lead our customers into the future.” As with the sale of its set-top box business, Cisco has been shedding slow-growth lines of business while making acquisitions in faster-growing arenas. Last week, Cisco announced its agreement to acquire Jasper Technologies, which delivers a cloud-based Internet of Things (Iot) service platform, for $1.4 billion.  The deal is expected to close this fiscal quarter. The company last quarter also completed the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist;  and 1 Mainstream, an on-demand streaming-content company. And on the call, Cisco executives said they recently completed the acquisition of Acano to help accelerate Cisco’s collaboration strategy to deliver video more broadly. In November, Cisco entered a “strategic partnership” with Ericsson ( ERIC ) which both companies say will improve their sales by the second half of this fiscal year. Robbins told analysts that Cisco and Ericsson “have begun to close transactions together. I would not translate that to any of the numbers we put out today. … We’re at the handful stage right now, but we see that accelerating.” “We delivered a strong Q2, and are managing the business extremely well in a challenging macro environment,” Cisco CEO Chuck Robbins said in the earnings release. “We’re managing the company on two fronts. We’re focused on continued strong execution in the near term while investing in the innovation to lead our customers into the future.”