Cisco profit rises, but outlook sinks stock

SAN FRANCISCO (MarketWatch) — Cisco Systems Inc. on Wednesday reported an 8% gain in profit, but the tech giant offered a weaker-than-expected sales outlook, sending its shares falling sharply.

Shares of Cisco (CSCO 24.49, +0.14, +0.57%) fell more than 14% in after-hours trading.

For the current quarter, Cisco said it expects revenue to rise 3% to 5% year-over-year. Analysts had expected the company to post a 13% year-over-year increase, according to a consensus survey by FactSet Research.

Chief Executive John Chambers cited a “challenging economic environment,” marked by striking trends, including weaker U.S. government spending and a weaker North American cable business “We did see some challenges in parts of our public sector, service provider, and European business,” Chambers told analysts on a call. “We’re disappointed. .. We’ve got a couple of air pockets that we hit.”

In a phone interview, Chambers said, “You’re going to see spending by governments around the world contract. That will affect us all. How quickly it hit was a bit of a surprise.”

Cisco’s sobering forecast surprised many analysts and investors as well, especially since the company is widely viewed as one of the industry’s strong players.

“Usually, they are very good on macro economic inflections,” Canaccord analyst Paul Mansky said. “And yet they seem to be inflecting in a different direction than the macro economy -- which is troubling.”

Kaufman Bros. analyst Shaw Wu said the company’s outlook will likely raise questions on whether it is losing share in its core markets.

“This does raise the concern that the networking market is slowing down,” he said. “But it seems that a lot of it is company-specific.”

Chambers insisted on the call with analysts that “we believe these challenges will likely be short-term in duration.”

Cisco reported a fiscal first-quarter profit of $1.93 billion, or 34 cents a share, compared with a profit of $1.79 billion, or 30 cents a share, for the year-earlier period. Revenue was $10.75 billion, up from $9 billion. Adjusted income was 42 cents a share.

Analysts had expected the technology giant to report earnings of 40 cents a share, on revenue of $10.75 billion, according to a consensus survey by FactSet Research.

(source:marketwatch.com)