A solid Q4 for John Chambers’ Cisco (CSCO), including its first quarter ever with more than $10 billion in sales. The network gear maker beat Wall Street’s expectations for both sales and profits, posting $2 billion of earnings on $10.4 billion of sales.
How does this quarter look? Not as great — the company is projecting 8% revenue growth, below the 8.8% that Wall Street predicted. But Cisco’s stock is up 7% after hours, to $24.23. Why?
Chambers’ remarks about the economy, while cautious — were encouraging. “While it’s too early to indicate it is a trend,” Chambers said, “we are seeing progress in the U.S. enterprise market.” Total, overall enterprise growth is “possibly stabilizing.” And large multinationals and financial institutions — the companies Chambers said first signaled a downturn almost a year ago — are spending “dramatically better.”
In five of the last six quarters, he says, those accounts had negative growth, or, best-case, mid-single-digit growth. In Q3 and Q4, year-over-year growth rates were “comfortably in double digits.”
Revenue: $10.4 billion vs. $10.31 billion consensus
EPS: $0.40 vs. $0.39 consensus
Guidance: (Conf. Call at 4:30 p.m.)
Q1 Revenue: $10.31 billion (8% y/y growth) vs. $10.39 billion consensus (8.8% y/y growth)
Q1 Gross Margin: 65% vs. 65.08% consensus
Q2 Revenue: $10.67 billion (8.5% y/y growth) vs. $10.76 billion consensus (9.5% y/y growth)
LIVE Conference Call Notes:
4:32 Call begins. Intros, etc.
4:34 John Chambers: Long-term growth projections of 12-17% still comfortable. Moving to a new, more abbreviated format of conference call.
4:35 Going over fiscal year numbers from release. Challenges: Pleased with both geographic balance, y/y order growth for fiscal 08. China up 30%, India 32%, Mexico 32%, Brazil 48%. Emerging market grew 19%.
4:37 Unified communications 51% y/y, App net svc 36%. (Still fiscal year.)
4:38 Quarterly results. Revenue a record 10.4 billion, 10% y/y increase. 3.5 billion cash from ops. Non gaap gross margins 65.2 pct, opex as pct of rev 35.7 pct. Y/y order growth: product 10%, service 20%. Geo: Emerging (lumpy) better balanced results: China over 30%, India 20%, Mexico and Russia 40%, Brazil 30%, emerging AsiaPac 23%. Emerging markets 10%. Asia Pac 19%, Japan 10%, Europe 11%, US and Canada 7%.
4:41 Routing 8% led by high end routing, switching 5%, advanced 15% led by u.c., 29%, app net svc 30%.
4:41 Startup progress strong: Q4 strong for emerging tech, grew 300% y/y. Telepresence 500%, digital media systems 200%, physical security 250% y/y. (Orders.)
4:43 On very positive side, productivity increased beginning to gain traction. Discussion “what is collab?” to “how can implement collab” and web 2.0 w/ Cisco. In areas we can control or influence, pleased with progress. Confidence with 12-17% strong. There may be times when revs grow above, times when they grow below. Challenges: Same mixed signals from market in u.s. and world. From service provider perspective, 1/3 of business, capex expenditure signals are mixed both by companies and geo. With shift to IP, believe strongly positioned better than ever before. SerPro customers either 1) have built out very large IP networks, 2) those at start of first or second next gen IP buildout, 3) slowing capex until they achieve more top line growth. Regardless of stage, believe in good position.
4:45 During each of economic slowdowns, Cisco has navigated through them very effectively. Gained wallet share, profit share during them. Will continue to be aggressive in investments during slowdown. Best estimate is a relatively short challenge going forward. While difficult to predict when we’ll see a stronger spending environment, best estimate is that current challenges will remain with us for the next few quarters. Guidance for first half rather than entire fiscal year. Rev guidance for Q1: 8% y/y growth. Q2: 8.5% y/y. In summary, believe very well positioned in industry from vision, execution perspective.
4:51 Going over more numbers from release.
5:02 Note we’ve updated guidance numbers at the top. J. Chambers going over highlights from Q4, both geographical and product-wise.
5:07 Cisco adds +/- 1% to guidance. Q1 gross margins about 65%. Operating expenses about 37% of revenue. Interest and other income about $175 million Q1, tax prov rate 24%. Difficult to predict exact weighted shares outstanding. Flat to down 50 million shares outstanding. Not taking into consideration further change in stock price. GAAP earnings anticpated 4 cents – 6 cents lower than non-GAAP.
5:10 Wouldn’t invest if we didn’t think slowdown would be short-lived. Emerging markets, Japan and service providers, next-gen buildouts, Web 2.0 could be strong. While many more positive areas than concerned, monitoring U.S. market carefully, and service providers longterm capex. Seeing progress in the enterprise market. Large multinationals and financial institutions doing dramatically better spending. In 5 of the last 6 quarters, these accounts had negative growth. In Q3 and Q4 saw y/y growth rates comfortably in double digits.
5:12 SP capex varies by company and geogrpahy. Most continue to get even stronger. Tough comps. If market continues to slow, don’t think dramatically will change long term opportunities. Our intent to expand share of customer spend. Oppts to expand in current markets and adjacencies, from home to datacenter. Continue to see us aggressively invest where appropriate.
5:15 Q&A begins. Said intentions to expand into adjacent markets. Elaborate? Expand in the home, small business, medium, enterprise, SP. Acquire big to small to medium. Partner big to big. Not ruling anything out.
5:20 More colour why competitors haven’t lowered numbers? Overall geo: What we’re hearing listen to what customers are telling us. Outside the US, GDP growth and growth of own business is pretty solid. US enterprise better than expected, service provider weaker than expected. Most customers seeing it ending early next year. Don’t want to project it into yearly numbers until we see it.
5:23 Not just selling products to service providers, but architecture. How do they bring economics to loads on their networks? Not seeing service providers not returning into double digits. Enterprise markets may be lumpy by individual countries. organisations that led us into slowdown — we’ve seen them upturn as a group, good balance over enterprise markets.
5:27 Confident with positive and challenges for Q1 guidance.
5:28 DSOs solid, order growth rate solid in July. Comfortability in terms of direction: While a comptitor may gain market share temporarily, feel comfortable where positioned in every market. Web 2.0 and collab biggest growth driver in next 5-10 years. Video killer app (ugh).
5:34 Congrats to Juniper!
5:46 Still think telepresence could be $1 billion market in 5 years. Movement into the home. Virtual hologram in YouTube. Time shift it into those roles. Not a sure thing, one product feel highest probability of billon dollar run rate is telepresence.
5:49 2.5 billion order rate run rate for U.C. VoIP phnes will do well whenever. Growth opptys prioritization and execution.
5:51 Call over.
The effects of the slowdown/recession have been hitting the country’s biggest media companies. What about its tech infrastructure? We should get a good idea when John Chambers’ Cisco (CSCO) reports July quarter (Q4) results this afternoon.
We’ll be most interested in the company’s guidance — how do fall orders look? Analysts already expect year-over-year revenue growth to slow to 8.8% in Cisco’s October quarter, less than the 9.3% year-over-year growth they expect for Q4. Will Cisco also give a full-year 2009 forecast?
We’ll also listen for any commentary about the economy or reaction to Monday’s Cablevision-DVR-in-the-cloud appeal victory, which could eventually dampen demand for high-end Cisco cable set-top boxes with built-in DVRs.
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