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Cisco's Chambers Delivers, and the Shares Surge

Stocks in this article: CSCO HPQ JNPR ALU RVBD

While Cisco's announcement of another round of layoffs last month prompted concern that the firm's recent turnaround was slowing, its latest results suggest the contrary.

"Cisco executes very well in a tough environment," Topeka Capital Markets analyst Brian White said in a note. The company's fiscal first-quarter guidance, he added, is cautious, but "good enough."

For its fiscal first quarter, Cisco expects revenue growth, excluding its NDS acquisition, of 2% to 4%. Including NDS, the company expects first-quarter year-over-year revenue growth of 4% to 6%.

Excluding items, Cisco predicts first-quarter earnings of 45 to 47 cents a share. Analysts surveyed by Thomson Reuters were looking for earnings of 46 cents a share.

Among Cisco's specific product categories, switching remains the 800-pound gorilla, contributing almost a third of the company's overall fourth-quarter revenue of $11.69 billion. Switching sales, however, were flat year-over-year.

Services was the next biggest revenue driver, accounting for 22% of sales and growing 12% compared to the fiscal fourth quarter of 2011. The services growth reflects Chambers' desire to sell a broader mix of products and services to customers, encompassing services, software and hardware, as opposed to standalone products.

Another key area for Cisco is its data center business. Although still a relatively small part of the company's sales, data center revenue climbed 90% year-over-year, driven by 58% booking growth in its UCS server product.

Cisco's cash strategy is also resonating with investors, most notably its decision to increase its dividend by a massive 75%. Speaking during the company's conference call, CFO Frank Calderoni said Cisco plans to return at least 50% of its free cash flow annually to shareholders in the form of dividends and share repurchases.

"The increase in dividend payments and the clear cash distribution strategy further adds to the appeal of the stock, in our view," said Nomura's Jeffrey. " The cash distribution policy is set to broaden Cisco's shareholder base."

--Written by James Rogers in New York.

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