Cisco Calms Concerns of Demand Drop With In-Line Forecast

(Bloomberg) -- Cisco Systems Inc. gave a forecast in line with analysts’ projections for the current quarter, signaling confidence in continued corporate spending on computer infrastructure.

Sales in the fiscal second quarter will increase 5 percent to 7 percent from the same period a year earlier, the San Jose, California-based company said Wednesday in a statement. That indicates revenue of about $12.6 billion, compared with analysts’ average estimate of $12.55 billion. Adjusted profit will be 71 to 73 cents a share in the period ending in January, the company said. Analysts predicted 72 cents, according to estimates compiled by Bloomberg.

Cisco Calms Concerns of Demand Drop With In-Line Forecast

Chief Executive Officer Chuck Robbins has returned the largest maker of networking gear to growth by updating its main hardware products and buying companies to push further into software and services. Cisco has also benefited from a spending spree by corporations on their infrastructure. Wednesday’s forecast indicates that may continue as the company projected a fifth consecutive quarterly expansion.

Robbins and Chief Financial Officer Kelly Kramer said the corporate spending environment remains strong. There was no slowdown in orders from price increases caused by tariffs that are a consequence of the ongoing trade dispute between China and the U.S.

“When we implemented the pricing changes, we saw absolutely no demand change,” Robbins said on a conference call with analysts. He’s confident that an agreement with China is a priority for the Trump administration and likely to happen before any further escalation of tariffs.

Cisco Calms Concerns of Demand Drop With In-Line Forecast

Cisco shares, which have avoided the broader sell-off in technology shares this year, rose as much as 5.3 percent in extended trading following the earnings announcement. The stock earlier closed at $44.33 in New York, leaving it up 16 percent this year.

In the fiscal first quarter, net income was $3.5 billion, or 77 cents a share, compared with $2.4 billion, or 48 cents a share, in the same period a year earlier. Revenue rose 7.7 percent to $13.1 billion.

In the three months ended Oct. 27, Cisco reported adjusted profit of 75 cents a share. That compares with the average analyst estimate of 72 cents a share.

Cisco reported higher revenue from all of its regions and all of its major product areas. The hardware division posted sales of $7.64 billion, up 9 percent from a year earlier.

By region, the Americas, the biggest source of sales, grew 5 percent. Europe, Middle East and Africa sales climbed 11 percent, and Asia had 12 percent growth.

Cisco, which still gets the majority of its sales from hardware, is trying to compensate for a shift to cheaper machinery. Its new products help customers better monitor data traffic, control user access, and diagnose and fix problems. Many of those functions are offered as add-on subscriptions, which provide future opportunities to cash in.

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