Last updated: August 11, 2011 3:43 pm

Cisco shares up 18% after sales increase

Cisco Systems’ shares jumped more than 18 per cent after the networking equipment maker reported increased sales and orders, which helped it beat lowered quarterly profit expectations amid its continued restructuring.

Shares on Thursday rose to a high of $16.34 after the announcement of fourth-quarter results, helping to lead an equity rally, but still far from the tech supplier’s 52-week high of $24.60 last autumn. The shares later eased back to be up about 16 per cent in afternoon trading, at $15.92.

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The leading equipment maker by sales said revenues increased about 3 per cent to $11.2bn in the three months until the end of July and forecast a yearly gain of between 1 and 4 per cent in the quarter just begun.

Gross margins and profit continued to fall, with net earnings down 36 per cent in the fourth quarter to $1.2bn, depressed by severance and other charges as the company reduces its workforce by 6,500.

On the non-GAAP accounting basis that Cisco prefers, earnings per share slipped from 43 cents to 40 cents. The company said it would earn between 38 and 41 cents a share on that basis in the new quarter.

“Finally we see some stabilisation,” said Tal Liani, an analyst at Bank of America.

Cisco has been criticised for investing beyond its core business in switching and routing, causing it to lose ground to competitors.

Most of the cuts implied by the restructuring are now complete, John Chambers, chief executive, told the Financial Times: “The big moves are largely over. We’re making progress.”

The revenue slide in the central businesses continued in the quarter, with switching down 4 per cent and routing off 2 per cent. Cisco executives blamed the poor results on a significant drop in spending by the US government. Sales of new products and services increased 7 per cent and 12 per cent, respectively.

Orders for switches increased by 6 per cent and routers surged 17 per cent. Nine of Cisco’s 10 largest country markets saw orders increase by 10 per cent or more. Some of the orders were sparked by discounting to win big deals. Overall company gross profit margin fell to 62.7 per cent in the July quarter and might fall as low as 61 per cent in the new quarter, executives said.

Cisco said it had tempered its projections because of the recent concerns about the state of the global economy, although Mr Chambers said he had yet to see any impact on capital budgets.

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