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Network equipment giant Cisco Systems (CSCO - Free Analyst Report) has reported its fiscal 2010 results (year ended July 31st). Revenues and earnings advanced 11% and 27%, respectively, from the prior year, to $40 billion and $1.33 a share, matching our estimates. Results were driven by strong performances across all operating regions and product categories, and the European segment remained a standout.

However, management tempered its outlook for the October period, citing somewhat soft end-market demand. In particular, although IT spending continues to improve from the depressed levels of the past few years, the pace of the recovery has slowed. Consequently, several of Cisco's customers now expect a more gradual turnaround.

In addition, lackluster economic growth at home, the still-sluggish domestic employment picture, and concerns about fiscal challenges in Europe (where Cisco derives about 30% of revenues), will likely weigh on near-term results.

Cisco stock traded sharply lower in reaction to the company's more-subdued outlook.

Nevertheless, we believe Cisco's longer-term prospects are solid, owing to the success of its new data center platform, virtualization and collaboration products, which should soon reach a point of mass adoption as enterprises look to upgrade to more cost-efficient technologies, and continued innovation in its core routing and switching devices. CSCO’s reputation for producing high-quality, technologically superior products, coupled with the network capacity constraints being brought about by rampant video-sharing and mobile Internet usage, should ensure good top-line momentum over the next 3 to 5 years. At the current share price, Cisco stock offers worthwhile appreciation potential over the pull to 2013-2015.


About The Company: Cisco Systems Incorporated is the leading supplier of high performance internetworking products for linking local-area and wide-area networks of computer systems. Products include routers, LAN and ATM switches, dial-up access servers, and network management software. The Cisco IOS software platform ties these products together, delivers network services, and enables networked applications. Foreign business accounted for 46.4% of 2009 revenues. R&D was about 13% of revenues.


* This report includes late-breaking news not reflected in our full-page review of this company.