Cisco Beats the Street

For Bob Faulkner's thoughts leading up to the Cisco call, click here.

CSCO reported fiscal first-quarter results after the close last night that were above consensus. More importantly, guidance for the fiscal second quarter will have The Street raising estimates.

Revenue in the quarter was $9.02 billion (-13% YoY; +6% QoQ) and pro forma EPS were $0.36 (GAAP = $0.30). Product revenue was $7.20 billion (-17% YoY; +7% QoQ) and service revenue was $1.82 billion (+7% YoY; +1% QoQ). The pro forma gross margin was 66.3%, up 70 bps on the year and 180 bps sequentially. The pro forma operating margin, at 28.8% was up 90 bps YoY and 270 bps sequentially, as pro forma opex declined from both prior-year periods. Cash from operations was $1.49 billion, with the cash position up about $0.3 billion to $35.3 billion after the repurchase of 76 million shares in the period. There was essentially no change in accounts receivable, leaving day sales outstanding at 32 days, or down 2 days. Inventory was unchanged as well, with days of inventory down 1 day to 39 days.

The book-to-bill ratio was above 1, once again. More importantly, management highlighted the fact that overall product orders were in line with normal seasonality, or down sequentially in the mid-to-low single digits. Particularly strong was demand from the US, which, while flat on a YoY basis, saw big improvement from its Enterprise and Service Provider customers on a sequential basis. Management believes that this will continue into the second quarter. In contrast to US demand, Europe and Emerging Markets remain tough. Management commented that pricing within emerging markets is particularly aggressive and suggested that, going forward, it may adopt more of a hard line in order to gain share.

From a product perspective, Switching revenue was $2.87 billion, down 20% YoY but up 2% QoQ, with Modular Switches slightly outperforming. Routers generated $1.57 billion, down 16% YoY, but up 6% QoQ, with the high-end products the strongest contributors. Within Advanced Technologies, revenue was $2.27 billion, down 16% from last year and up 12% from the previous quarter. Relative strength was in wireless, security and telepresence.

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At the time of publication, Faulkner held no positions in the stocks mentioned.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.