Last updated: November 14, 2012 12:02 am

Cisco hails recovery in US demand

Cisco shares enjoyed a 7 per cent relief rally in after-market trading after the US network equipment maker said a recovery in demand it had seen in the US could be the harbinger of a broader economic rebound.

John Chambers, chief executive, on Tuesday issued a surprisingly upbeat outlook for the coming months, despite a continuing slump in Europe and political troubles that have hit Cisco’s sales in China.

“The US has to lead the total globe out of this slowdown,” Mr Chambers said. “It’s not going to come from Europe, and the emerging economies are not strong enough.” If the improvement in US demand of the past six months continues into early next year, the stage could be set for a wider bounce in capital spending and, eventually, in new hiring, he added.

Cisco’s earnings reports have come to be seen by Wall Street as an indicator of the latest conditions in some of the biggest global technology markets, given that it reports earnings a month later than most of its competitors. The company said it had particularly benefited from a pick-up in demand late in its first quarter, though it put some of this down to market share gains against rivals.

The company’s revenues rose 6 per cent in the company’s first fiscal quarter to $11.9bn, above the 4 per cent growth expected by Wall Street, despite a 10 per cent drop in the company’s operations in Europe.

Cisco’s sales growth has also collapsed in China since a press report in the US identified it as a source for a recent, highly critical Congressional report into Chinese manufacturer Huawei. Mr Chambers denied that the US company had given any information to the committee which produced the report, other than handing over an earlier report on a legal battle Cisco fought with Huawei several years ago.

Meanwhile, cost controls that held the pro-forma increase in operating costs to only 1 per cent enabled Cisco to top most analysts’ profit forecasts for the period. Net income climbed 18 per cent to $2.1bn, or 39 cents a share. On the pro-forma basis on which Wall Street judged the company, earnings reached 48 cents a share, ahead of the 46 cents that had been expected.

Mr Chambers said the results demonstrated a solid operational performance in a period when many of the company’s competitors had seen their results deteriorate.

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