Thursday, May 7, 2009

CSCO F3Q09 Earnings 05/06/09-(Daren Pon)

Cisco Systems Inc. had a rough quarter with, but still managed to beat quarterly earnings expectations. Cisco earnings fell 21%, but still beat analysts with earnings of $0.23 per share, about $0.05 above the consensus estimate. Cisco shares rose $0.43 to $20.04, an increase of 2.2% after-market.

In F3Q09, Cisco increased cash reserves by $2 billion, totaling $33.5 billion. Revenue decreased by 17% year-over-year to $8.2 billion. Gross margins were up 0.10% year-over-year at 55.1% through lower manufacturing costs that helped offset low sales volume and discount pricing.

Moving forward, many companies are still feeling the impact of the recession and are going to hold off on any large-scale improvements to networking infrastructure. This will continue to hurt Cisco until the economy moves further along recovery. Optimistic business lines include Cisco's video conferencing service Telepresence and virtualization technologies. The former uses large televisions and high-speed network connections to simulate face-to-face conference table discussions with users dialing in across the globe, saving travel expenses. Telepresence sales rose 70%. Expansion of such systems would also increase sales of Cisco routers and switches. Virtualization is still a powerful, yet easily implemented cost-cutting tool that allows one computer to act as many.

Cisco is a strong company and I maintain a HOLD on it. Despite some interesting areas of growth, the core business will still continue to suffer. As more opportunities arise within Technology, the opportunity cost of holding Cisco could rise too high.

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