Breaking a 25-quarter streak, Cisco Systems (CSCO) on Tuesday said it had missed both earnings and revenue estimates for its fiscal second quarter (the period ending Jan. 27).
The networking-equipment giant reported earnings of $1.33 billion, or 18 cents a share — a penny short of expectations. And revenues were a disappointment, too: Where analysts expected revenue of about $7.2 billion, Cisco reported $6.75 billion. That's 55% higher than a year ago, but it also breaks another streak. It marks the first time in 12 quarters that revenue growth has decelerated — from 66% year-over-year in the fiscal first quarter to 55% year over year this past quarter.
Cisco Chief Executive John Chambers said in the company's conference call Tuesday night that business was "obviously even more challenging than anticipated." But he called the current economic environoment a "brief pause in our 10-year expansion." He predicted that the economic downturn will end almost as abruptly as it began. "Deep in, deep out," he said.
Nevertheless, the report gave Wall Street a jolt. "I'm a bit surprised," admits Tom Luria of ING Barings. After he heard Chambers's cautious comments last month, he lowered his fiscal 2001 estimates, but didn't think the current quarter (that is, the fiscal second quarter) was in jeopardy. "In hindsight, he was probably trying to warn the Street." Ah, hindsight.
Cisco's robust profit margins came under some pressure in the quarter, too. Its gross profit margin slipped to 63% from 65% a year ago. "Perhaps Cisco could have met top-line estimates [by cutting prices to stimulate sales], but that really would have sacrificed margins," Luria notes.
The networking-equipment giant reported earnings of $1.33 billion, or 18 cents a share — a penny short of expectations. And revenues were a disappointment, too: Where analysts expected revenue of about $7.2 billion, Cisco reported $6.75 billion. That's 55% higher than a year ago, but it also breaks another streak. It marks the first time in 12 quarters that revenue growth has decelerated — from 66% year-over-year in the fiscal first quarter to 55% year over year this past quarter.
Cisco Chief Executive John Chambers said in the company's conference call Tuesday night that business was "obviously even more challenging than anticipated." But he called the current economic environoment a "brief pause in our 10-year expansion." He predicted that the economic downturn will end almost as abruptly as it began. "Deep in, deep out," he said.
Nevertheless, the report gave Wall Street a jolt. "I'm a bit surprised," admits Tom Luria of ING Barings. After he heard Chambers's cautious comments last month, he lowered his fiscal 2001 estimates, but didn't think the current quarter (that is, the fiscal second quarter) was in jeopardy. "In hindsight, he was probably trying to warn the Street." Ah, hindsight.
Cisco's robust profit margins came under some pressure in the quarter, too. Its gross profit margin slipped to 63% from 65% a year ago. "Perhaps Cisco could have met top-line estimates [by cutting prices to stimulate sales], but that really would have sacrificed margins," Luria notes.
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