What Does Cisco’s Profit Indicate About the Tech Economy?
If the state of Cisco Systems (NASDAQ:CSCO) is any indicator of how the tech economy is faring, then things are looking up. AllThingsD reported Wednesday that on the heels of positive quarter results, Cisco sales rose to $23.06 by 7:30 p.m. Tuesday, a rise of nearly 9 percent in after-hours trading.
Though the network equipment maker’s quarterly results were only marginally better than anticipated in the consensus, they were still better, and that is a report that is now largely welcomed in today’s age. Not only was the report positive for Cisco and its shareholders, but also for other tech companies, whose results usually ride on the heels of the networking giant. Investors closely follow Cisco Chief Executive John Chambers’ analyses as his company is usually a strong barometer for the general health of the technology industry.
Despite concern that Cisco would follow in the footsteps of its competitors, Juniper Networks (NYSE:JNPR) and International Business Machines Corp. (NYSE:IBM) — who have been demonstrating signs of weakness on account of stagnant customer spending — Cisco eased anxieties by posting a higher than expected quarterly profit and offering optimism that current-quarter revenue would rise. Reuters reports that Cisco forecast current-quarter earnings per share of 50 to 52 cents, in line with Wall Street expectations. It said revenue would grow in a range of 4 to 7 percent from the year-ago quarter, a significantly better outlook than its rivals posted for the current quarter.
Although Cisco posted “slow and steady growth” in its biggest business segment, sales were $3.4 billion, down 2 percent year on year. Compared to the difficult quarters of its networking competitors, however, this 2 percent drop is not bad. When AllThingsD questioned Chambers about it, he explained, “It has been a tough environment there. As you know, our industry peers have had terrible year-to-date numbers on their stocks. When I look at the F5s and Junipers and Riverbeds of the world, you’re seeing them surprising the market, and declines in their share prices. Same thing with the IT players. We’re one of the few players that hit and exceed expectations in that category. So it speaks to our relevance changing.”
Other parts of the phone conversation highlighted in AllThingD’s report demonstrates Chambers’ optimism about Cisco’s quarter, along with the U.S. economy in general, saying, “It means that our relevance is changing. It also means that, barring a surprise, the U.S. economy is going to continue to recover at this pace. And it has to for the rest of the world to come out of all this.”
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