Published January 13, 2015
Cisco Systems Inc. Chief Executive John Chambers said on Tuesday that November orders met expectations as the biggest maker of computer-networking equipment grapples with anemic sales, suggesting the economic bottom is past.
Speaking at the company's annual meeting for financial analysts, Chambers said Cisco is still having difficulty forecasting sales and demand beyond one or two quarters out. The company, which makes gear that powers the Internet, has reported losses, including one-time items, on lower revenues in the last two quarters.
Companies have cut back on their capital spending during the current economic slowdown to save cash, hurting the sales of equipment suppliers like Cisco. However, Cisco's revenues in its most recent quarter — its fiscal first quarter — rose from the previous quarter, boosting hopes a rebound is near.
"Our orders in November were linear and on expectations," Chambers said. He declined to comment on the company's fiscal second quarter, which ends on Jan. 26.
Linearity refers to the smoothness of incoming orders, which allows companies to run their businesses with more predictability and ultimately more profitably.
Cisco shares closed up 66 cents, or 3.3 percent, at $20.52 on Nasdaq. The stock has fallen almost by half so far this year.
Bad News May Be Over
Chambers said last month that Cisco's orders had been stable, or smooth, since June, and his latest pronouncement suggests a bottoming out is at hand and the economy will rebound gradually, said Steve Mygrant, a portfolio manager of Fifth Third Technology Fund, which holds Cisco shares.
"It's consistent with what we're hearing from other companies," he said. "It's a consistent theme in the last three to four weeks."
Investors generally felt Cisco's continued order stability suggest the bad news may be over.
"It looks like we've hit the bottom and things are starting to improve," said analyst Shawn Campbell of Northern Trust Corp.'s asset management arm, which owns Cisco stock. "People just wanted confirmation before they became believers."
Chambers added a small but growing group of company executives believe the rebound will be sharp rather than gradual.
"The bottom's in the rearview mirror unless something drastic happens in the economy," UBS Warburg analyst Nikos Theodosopoulos said.
'Major Moves' Planned
Analysts on average expect the San Jose, California-based company to post a second-quarter profit of 5 cents a share, within a range of 3 cents to 7 cents, on sales of $4.47 billion, according to research firm Thomson Financial/First Call.
The company reported year-earlier earnings of 18 cents a share on revenue of $6.75 billion.
Asked whether Cisco plans any major revenue-generating acquisitions, Chambers told the 350 analysts and investors in the audience that it intends to make "major moves" in the next 12 months in three markets — voice, storage and optical — where it wants to boost its presence.
Chambers repeated previous comments that Cisco plans to make eight to 12 acquisitions over the next 12 months. He has said large publicly traded companies are not the targets.
The company has set a goal over the next three to five years of boosting its revenue per employee from $470,000 in the last quarter to at least $700,000, based on an annual growth rate of 10 percent, he said. If the growth rate hits 20 percent, the goal would rise to $850,000 per employee.
The "super stretch" goal is $1 million in revenues per employee, assuming a 30-percent annual growth rate, Chambers said.
He repeated comments made to Reuters last month that Cisco expects to continue increasing its market share during the current economic slowdown, including the current quarter.
"Our ability to break away actually got larger during the transition," he said. "We never gained more market share in our history than we did last quarter."
Chambers previously said the company expects to exit the slowdown with greater market share and even more cash than the staggering $19.1 billion it now has.
While capital spending may be down next year, Chambers said he expects higher outlays for Web-based applications or Internet Protocol technologies, which will further boost companies' productivity.