"We're still expecting spending to be down in the mid-single digits" for the rest of the year, Kramer said in a phone interview. "There have been some reports that spending might pick up in the second half of the year, but we're not assuming that."
For the third quarter, Cisco earned an adjusted 54 cents a share on $12.1 billion in revenue as product revenue rose to $9.32 billion in the quarter, up from $8.82 billion in the year-ago quarter. Gross margins during the quarter were 62.5%, with product gross margins at 61.8%, up 40 basis points compared to a year ago.
Analysts surveyed by Thomson Reuters expected the company to earn an adjusted 53 cents a share on $12.06 billion in revenue.
For the upcoming quarter, Cisco said it expects revenue to rise between 1% and 2% year over year, with earnings between 55 cents and 57 cents a share. Analysts surveyed by Thomson Reuters expect the company to earn 56 cents a share on $12.65 billion in revenue.
On the earnings call, outgoing CEO John Chambers tried to end speculation the San Jose-based Cisco would acquire security company FireEye (FEYE); however, CFO Kramer stated Cisco is keeping an open mind on acquisitions, not just in security, but all areas, including software and cloud.
"We'll continue to be very acquisitive in the future," Kramer said, without mentioning any possible targets. "The security space is very interesting -- it's very fragmented and it's an area we'll always look to grow in, both organically as well as inorganically."
Here's what analysts had to say following the quarter:
Cantor Fitzgerald analyst Brian White (Buy, $36 PT)
"With another strong quarter of execution under Cisco's belt, we are raising our estimates, increasing our price to $36.00 (from $33.00) and reiterating our BUY rating on the stock. This was John Chambers' last earnings call as Cisco's CEO and we believe he is leaving the role with Cisco operating on all cylinders. Despite weakness in carrier spending and continued softness in emerging markets, Cisco delivered a solid 3Q:FY15 print and offered a healthy 4Q:FY15 outlook with strength highlighted in the enterprise, public and commercial markets. Given Cisco's consistent execution in recent quarters and concerns around software-defined networking (SDN) starting to wane, combined with an attractive valuation (i.e., 9.7x our CY:16 EPS estimate, ex-cash) and a dividend yield of 2.9% on the stock, we believe investors will continue to show interest in Cisco. Next up, Cisco is hosting an investor meeting on June 8 and 9 at the Cisco Live conference."
Credit Suisse analyst Kulbinder Garcha (Underperform, $21 PT)
"The tone in terms of orders was reassuring (management noted Enterprise Orders up 21% in the US, Enterprise Commercial Orders up 11%) also management noted solid traction with contact values over $1mn up 60% y/y and the average deal size rising over 30%. For the Nexus 9000 management noted 970 new customers (from ~1,400 last quarter) and customers for the APIC controller to reach 2,650 customers (up 580 this quarter). Despite all of this, switching revenue growth decelerated from 10.5% to 5.3% q/q. This leads us to believe that much of the new additions are really minimally incremental. We now assume switching revenue growth of 4.9%/0.7% for FY15/16. At the group level we assume revenues of $49.1bn/$50.4bn, growth of 4.1%/2.7% for FY15/16. While we believe that recent execution is to be applauded, we do note that this comes against favorable comparisons and the current revenue run rate over the past two years has not grown organically."
Pacific Crest Securities analyst Brent Bracelin (Overweight, $36 PT)
"Another solid quarter with upside driven by 5% y/y revenue growth and 6% EPS growth on improving margins reinforces our confidence that 2015 could be a breakout year for Cisco. While sluggish service provider orders tempered the July outlook, digital transformation projects are driving impressive double-digit order growth rates in U.S. enterprise and commercial. Overweight CSCO as news flow should remain positive into Cisco Live in June. We see 23% upside to $36."