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Cisco Soothes Street's Concerns

The tech bellwether beat consensus expectations, easing fears about growth.

Updated from 5:51 p.m. EDT


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delivered a stronger-than-expected quarter, soothing concerns that the tech bellwether would show signs of deterioration amid a slowing economy.

The San Jose, Calif., networking giant said it had a fiscal third-quarter profit of $1.8 billion, or 29 cents a share, which fell from a profit of $1.9 billion, or 30 cents, in the year-ago quarter. Excluding acquisition-related charges, Cisco earned $2.3 billion, or 38 cents a share, which topped the Thomson Reuters average estimate by 2 cents.

Cisco said that revenue jumped 10.4% from a year ago to $9.8 billion, slightly above Wall Street's estimate of $9.75 billion. "We are reasonably comfortable with growth on the top line," said CEO John Chambers on the company's conference call late Tuesday, adding that he still expects long-term annual growth in a range of 12% to 17%.

Looking ahead to the fiscal fourth quarter, Chambers said that Cisco should see revenue rise in a range of 9% to 10%, citing the impacts of the broader economic picture. "We also see the economic challenges that the U.S. is experiencing," he said. "We are continuing to see that U.S. and some European customers remain cautious."

Analysts currently expect a 9.1% rise in revenue during the fiscal fourth quarter, according to Thomson Reuters. Shares of Cisco rose 1.2% in extended trading.

Traders had been on edge after Chambers reduced expectations for revenue in the fiscal third quarter. On the company's last conference call, Chambers cut Cisco's fiscal third-quarter guidance to 10% growth, down from the 15% previously expected. At the time, he said the company's long-term annual growth rate would be somewhere between 12% and 17%. During a presentation a month later, Chambers said he was "even more comfortable" with that growth rate.

"We believe we are very well positioned," Chambers said during Tuesday's conference call. "If the market does continue to slow, we believe this will not dramatically change our long-term opportunities. You will continue to see us invest aggressively where appropriate while maintaining our focus on financial models."

Chambers also noted that Cisco's quarterly results include April, giving the company a better view on its business compared to competitors who closed their books at the end of March. He said that "nothing dramatic" happened in the quarter and that it followed the model for how Cisco usually performs in the fiscal third quarter.

However, not all was rosy on the conference call. From a U.S. perspective, the market did soften, although Japan appears to be in growth mode again for Cisco, Chambers said. "When our largest market is growing in the single digits, it makes it hard for us to grow total revenue more than the 10% range," he said.

Also on the negative side, CFO Frank Calderoni said that gross margins are expected to decline to 65% in the fiscal fourth quarter, down slightly from 65.4% in the fiscal third quarter.

Cisco's earnings beat echoes better-than-expected results of other key tech names such as


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