Cisco Systems' cable-centric Service Provider Video group posted revenue of $1 billion for the three months ended April 28 -- up 12% year over year -- but the company's shares fell on a weak outlook for the current quarter.
Cisco is in the midst of a $5 billion acquisition of NDS Group, a worldwide provider of TV security and middleware technologies. The deal, announced in March, is expected to close in the second half of 2012.
The NDS deal will "significantly increase the speed with which we can help our service providers and a broader set of media players deploy and monetize next-generation video experiences," Cisco chairman and CEO John Chambers said on the company's earnings call Wednesday.
Chambers said he has spoken personally to more than 20 service provider customers about the NDS acquisition and claimed that "every one of them understands the importance of this move and the benefits it gives to them."
Last year, as part of its goal to chop $1 billion in annual operating costs, Cisco sold its set-top box manufacturing facility in Juarez, Mexico, to electronics maker Foxconn Technology Group.
As video infrastructure increasingly migrates "into the cloud... over time [that] will help our margins as we move out of a set-top box approach with software to a cloud approach," Chambers said. "That will take many years to evolve. The Videoscape type of activity has to be there to manage that segment of the video."
Videoscape is Cisco's umbrella strategy to merge traditional TV with next-generation Internet video content and applications.
The lift in Service Provider Video sales in the recent quarter comes more than a year after Cisco experienced a pronounced drop in set-top box sales in North America. After set-top sales plunged 29% for the three months ended Jan. 29, 2011, the cable business recovered last fall with a 13% year-over-year sales increase in the October 2011 quarter and was on pace to hit an annual run rate of $4 billion. The Service Provider Video unit posted $1 billion in sales for the quarter ended Jan. 28, 2012.
Over all for the quarter ended April 28, Cisco reported quarterly revenue of $11.6 billion -- up 6.6% from the year-earlier period -- and net income of $2.2 billion, a 19.8% year-over-year increase.
Cisco shares dropped more than 8% in early trading Thursday, to as low as $17.02 per share, after the company issued weaker-than-expected guidance for the current quarter ending July 28, its fiscal fourth quarter 2012. The company expects revenue to be up 2% to 5% year-over-year -- compared with Wall Street consensus estimates of 7% growth -- with adjusted earnings per share of 44 cents to 46 cents, versus analyst projections of 49 cents per share.
"The magnitude of the weak Q4 guidance was surprising," Jefferies & Co. managing director George Notter wrote in a research note. "It reminds us that, while Cisco is executing rather well, the business remains highly correlated with the ebbs and flows of the global macro-economy. Europe is clearly deteriorating."
The company's headcount at the end of the quarter was 65,223, down 11% from 73,408 a year ago but up 1,353 sequentially. Cisco said the employee increase was driven primarily by hires in services and strategic engineering.