Cisco Systems aided by quickening order growth

Shares in Cisco Systems jumped in after-hours trading as the biggest seller of networking equipment reported accelerating order growth in the quarter ended October 29.

Cisco stock climbed 4 per cent on Wednesday evening after the San Jose-based company reported fiscal first-quarter results that beat expectations for sales and earnings.

It is the second quarter in a row that Cisco has exceeded its guidance, following disappointing results in switches and routers and falling margins that prompted a restructuring that is almost complete.

Revenues rose 4.7 per cent to $11.26bn in the latest quarter, although profits slid nearly 8 per cent to $1.8bn, or 33 cents a share.

John Chambers, chief executive, told the Financial Times that he was surprised by the strength of the surge in US commercial and government orders.

He added that he had been disappointed that Congress had not moved to give companies a tax break for repatriating overseas cash and that Cisco would begin investing more in European acquisitions as a result.

Mr Chambers has been one of the most outspoken proponents of legislation to reduce the taxes on returned cash, although Cisco is one of many companies with tens of billions of dollars stored in other countries.

Cisco executives said revenues had increased as the quarter progressed, with more than 40 per cent of sales coming in the final month.

Though revenues from switching were flat and router sales fell 3 per cent in the quarter from a year earlier, new orders rose substantially.

Total orders increased 13 per cent from the same period last year.

“We are seeing stability in our switching portfolio,” said Mr Chambers, even though the company is competing on design and other factors instead of price.

Analysts were encouraged that gross profit margins had increased in switching, Cisco’s largest segment.

Cisco said it had 8,400 fewer employees than a year ago, after lay-offs and the sale of a manufacturing plant in Mexico. The company took a $200m charge for the changes in the quarter and with the restructuring nearing completion, expects another $100m charge in the second quarter.

Mr Chambers and other executives said the surge in orders had been roughly evenly divided among telecoms groups, other businesses and government. All regions showed improvement, with the company’s top 10 country markets gaining between 7 per cent and 43 per cent against the same period a year earlier.

The company said it was cautious about the world economic environment and was taking it “one quarter at a time”.

Mr Chambers described the quarter just ended as the first in a three-year strategic plan that included greater attention to core products and a reorganised sales staff.

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