Cisco: Still Marching To Its Own Beat

NEW YORK ( TheStreet) -- Although it is not reflected in its stock price, networking giant Cisco ( CSCO) continues to make Wall Street doubters look incredibly foolish.

With the stock resting at $19 and Cisco sitting on $45 billion in cash, it won't be long before the company starts putting its money where its mouth is -- particularly since Cisco has been hinting about more acquisitions. But for investors, will it be too late to capitalize? With Cisco's recent earnings performance, this is a question worth asking.

Software Is The New Hardware

Cisco started its fiscal 2013 just as it ended 2012, with another earnings beat. The network giant reported net income of $2.6 billion, or 48 cents per share on revenue of $11.9 billion. Not only was this enough to beat analysts' estimates of 46 cents per share, but the results also represented 11% profit growth. Likewise, revenue also grew by 6% and exceeded street expectations of $11.77 billion.

Cisco continues to see excellent improvement in its services business with revenue growing year-over-year by 12%. Some of the company's largest customers have contributed to the growing demand as evident by the 9% increase in orders. On the other hand Europe continues to be a challenge. Likewise, Cisco's routing and switching business continues to underperform. So what does it do?

However, as has been the case for most of the year, Cisco has provided an answer to its hardware weakness by opening its wallet. The company's recent shopping spree includes spending $1.2 billion for Meraki and most recently $141 million in cash for Cariden -- both within the past two weeks.

This brings Cisco's software acquisitions total to nine. Essentially, Cisco is looking to leverage its strong services business, which grew by 12% with more cloud-based purchases. The question is, will it be enough to offset its lagging hardware business. But more importantly, it may not even matter.

Once enterprises start migrating fully into the cloud, software will become "the new hardware." That Cisco has been investing heavily in this direction is not a surprise -- particularly since that market is projected to grow to $177 billion by 2015. In the meantime, the company is looking for any type of competitive advantage. Still, Cisco doesn't think that it has done enough.

Moving Forward

Cisco expects second-quarter earnings between 47 cents a share and 48 cents per share. The company also expects revenue to grow as high as 5.5% if it reaches the high end of its range of $12.1 billion. As has been the pattern for most of the year, the company has chosen to guide conservatively.

On the other hand, Cisco now has a streak of seven consecutive quarters where it beat earnings forecasts. Q2 won't be any different -- particularly since the market is expecting a rebound in enterprise spending, which has prompted analysts to upgrade the stock to $25.

Likewise, Cisco's management deserves more credit than they have received. Although the company has gotten more than its share of criticism for its inability to grow, management continues to ignore all of the noise and has focused solely on execution.

As such, it should be viewed as an encouraging sign that the company is willing to leave no stone unturned to find growth opportunities -- regardless of how much it cost. Investors would be wise to add shares at current levels as the stock has a good opportunity to trade in the $25 to $30 range during the next 12 months.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.