Despite a dismal quarter among competitors and a faltering service provider segment, Cisco Systems Inc. posted stronger than expected earnings, with a 12 percent boost in sales for its network transmission and Internet Protocol-based products.
But the company also warned that the service provider markets are still sluggish, and may continue to struggle over the next few quarters.
Unlike other network gear providers, Cisco's sales rose during its fourth quarter 2002 ended July 27. Total sales equaled $4.8 billion, identical to the previous quarter but a 12 percent increase compared to the same quarter 2001. The company attributed the boost to growth in commercial and enterprise customer business.
Special items excepted, the company posted earnings of $1 billion at 14 cents per share, above analysts' earlier estimates of 12 cents per share. That compares to earnings of $163 million during the same period last year.
Pro forma gross margins also rose to from 63.1 percent in the previous quarter to 67.7 percent, largely because of costs savings from lower component costs and value engineering and improved inventory management.
The San Jose, Calif.-based company also announced it is boosting its stock buyback efforts to cut down on dilution, raising the goal from $3 billion to $8 billion. Another incentive is the company's stock price, which at $12.07 is close to a yearly low.
But Cisco is not without trouble spots, and one of them appears to be service-provider customers such as cable operators, telcos and Internet carriers. In a conference call, Cisco CEO John Chambers noted it would not be surprising if that trend extends two more quarters.
With service providers trimming gear purchases until revenues improve, "there is a good chance there may be a continuing wane in capex," Chambers added.
Nevertheless, Cisco has put effort into strengthening relations with these carriers and investing in its service provider product resources to gain a jump on competitors when this sector does turn around, Chambers said.
"Only time will tell if this strategy plays out the way we hoped," Chambers noted.