Cisco Sees Revenue, Profit Growth, but Forecast Disappoints

Despite first-quarter jumps in revenues and profits, Cisco faced questions from analysts over missed sales projections and a lukewarm forecast.

Cisco Systems saw revenues and profits jump significantly in its fiscal 2011 first quarter. The company saw gains in collaboration, video and the data center, all areas Cisco executives have targeted as important growth markets, and hired another 1,900 people during the three months that ended Oct. 30.

However, despite the strong numbers in many areas, it was the challenges in the quarter-what CEO John Chambers called "bumps" or "air pockets" in a conference call with analysts and journalists on Nov. 10-that generated much of the attention when Cisco unveiled its quarterly earnings.

Those challenges were in the public sector as well as the cable television and consumer markets, according to Chambers. And those challenges contributed to Cisco officials' decision to forecast revenue growth of 3 to 5 percent in the current quarter, lower than analyst expectations.

However, Chambers also said he expected fiscal 2011 revenues to be 9 to 12 percent higher than last year's, and stressed several times during the call with analysts that while there were issues in the first quarter, Cisco's long-term business efforts were strong.

"I'm very comfortable with where we're going," he said.

Cisco saw revenues of $10.75 billion, a 19.2 percent jump from the same period last year, with profits at $1.9 billion, an 8 percent rise.

But problems in the public sector and other areas got the most attention. Sales came in at about $500 million below what Cisco initially forecast for the quarter. Chambers noted that given the type of products Cisco sells, it's difficult to hit sales numbers accurately all the time, though he said that the company normally meets or exceeds its projections.

"We missed our sales forecast," he said on the call. "We don't do that very often."

Given the size and breadth of Cisco's business, and the reach it has throughout the tech industry, the company's numbers resonate. In addition, unlike most other tech companies, its quarterly earnings include the month of October. Analysts asked Chambers if Cisco's stumble was a short-term issue specific to Cisco, or an omen for the rest of the industry.

Chambers said it was a temporary blip, though one with which Cisco will have to deal. The public sector is about 22 percent of Cisco's overall business, and the struggling global economy has forced governments-not only in such countries as the United States and Central Europe, but also at the state level-to rethink some of their technology spending. Sales to state governments dropped almost 25 percent from the same quarter last year. In addition, sales to cable operators dropped 35 percent.

Chamber said Cisco executives expected a slowdown in such areas. "What surprised us is it happened faster than we expected," he said.

Cisco is aggressively moving into a wide range of areas beyond its networking roots, bringing it into closer competition with the likes of Hewlett-Packard, Dell and IBM, as well as its traditional rivals, including Juniper Networks. However, Cisco's growth into such areas as the data center-with its UCS (Unified Computing System), collaboration, virtualization and cloud computing will prove to be boons for the company, Chambers said.

"Our ability to enter new markets, from cloud to video mobility to home, is gaining speed and scale," he said during the call.