Cisco back on the acquisition trail

Cisco Systems is back on the acquisition trail after the network equipment maker reported it was emerging “reinvigorated”, focused and aggressive from a major reorganisation last year.

Cisco reported fiscal second-quarter profits and revenues ahead of analyst expectations and said it was achieving good progress and momentum in the three-year growth plan outlined last September.

Earlier in 2011, it had unveiled a restructuring to take out $1bn in costs as it stopped investing in 10 areas of its business, including its Flip consumer video camera unit, and announced thousands of job losses. John Chambers, chief executive, said the billion dollars in savings had been achieved a quarter early.

“Over the past year, we’ve curtailed our M&A activity to a large extent as we’ve worked hard to be focused,” he said. “We expect to be more active with acquisitions in the quarters and the years to come.”

Cisco has been extremely acquisitive in the past, but Mr Chambers said future deals would focus around the five key areas, or “foundational priorities”, around which the company was now based.

These are its core business of network switching and routing equipment, collaboration including video conferencing, data centres and the cloud, other video services and “architectures for business transformation” – a comprehensive offering of products for businesses.

The Silicon Valley company reported record revenues of $11.5bn, up 11 per cent on the year-ago quarter, and profits of $2.6bn or 47 cents a share, up 27 per cent. Wall Street expected 43 cents a share in profit on $11.2bn in sales, according to a Bloomberg survey.

Cisco predicted that revenues would grow 5 to 7 per cent year-on-year in the current quarter. Its shares rose as much as 3 per cent initially in after-hours activity in New York before trading almost flat at $20.35 after the conservative guidance.

Mr Chambers said the company was living in unusual times.

“On the one hand, the business feels good, demand for Cisco products and services is healthy ... On the other hand, there is significant uncertainty in the broader macro environment and as such it is prudent for us to remain conservative in our outlook for the second half,” he said.

The company reported service provision grew fastest among its customer segments, with 12 per cent revenue growth, while the public sector lagged behind and was down 1 per cent.

Geographically, Japan and Canada were strongest, with 29 per cent growth, and India was the weakest among emerging countries, with revenues down 13 per cent year-over-year.

“India has some unique challenges, especially in the public sector,” said Mr Chambers.

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