Sizzling Quarter for Cisco

Last Update: 08-Aug-07 07:18 ET
It was another great quarter from networking giant Cisco (CSCO, 31.63) with upside earnings results and optimistic guidance lifting US stock futures Wednesday. Cisco's latest results further support our long-term view that it remains the best-positioned company to benefit from convergence across the carrier, enterprise and consumer segments. Cisco's performance continues to defy its critics. We think valuation will reflect its growth rate and operational performance. We remain buyers of the stock, a suggested holding in the Briefing.com Active Portfolio since February of 2006.

The Triple Play, broadband growth, and video will support higher carrier and cable provider equipment spending over the next few years – much of which will be on IP technology. New architectures and applications will drive a similar cycle on the enterprise side, while the consumer segment will be driven by the demand to deliver content wherever, whenever, and however users desire.

For the first quarter, Cisco forecast revenues to be in the range of $9.45-$9.55 billion, implying growth of 15-17% y/y. The figure is well above the current consensus estimate of $9.38 billion. Gross margins are expected to be flat at 65% on a sequential basis.

Reflecting its business momentum, Cisco raised its long-term revenue growth rate to 13-16% range, implying revenues of $39.5-$40.5 billion - up from its prior projection of 10-15%.

In the quarter, Cisco beat expectations on nearly all counts. Sales rose 18% over the prior year, gross margins widened by 67 basis points sequentially and EPS beat by a penny. Cash flow and the balance sheet improved across the board.

Growth was driven by strong switching growth, up 18% y/y driven by the integration of advanced technologies including wireless, IP telephony and security in addition to capacity additions. Routers revenues rose 14% with high-end router orders rising an impressive 30%. The backlog is up 30% over the prior year to $3.9 billion with deferred revenues up 25%. The company repurchased $1.5 billion worth of common stock. (kdubord@briefing.com)
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