Network equipment maker Cisco Systems (CSCO - Free Analyst Report) has reported earnings per share of $0.34 for its fiscal 2011 first quarter (ended October 31st), a penny below our estimate but up 13% from last year. Revenues grew 19%, to $10.75 billion, in line with management's guidance and our forecast. Core routing and switching devices had a solid quarter, rising 13% and 25% respectively. Higher-end products like the ASR edge routers and the Nexus line of switches did particularly well. New products revenue rose 22%, led by data center and collaboration products. Cisco's next-generation data center platform, The Unified Computing System, combines computing, network, storage, and virtualization functionality. The platform grew more than sixfold, year over year, to an annualized run rate of almost $500 million.

There were pockets of weak demand from certain public sectors (including those in Europe) and service providers, as evidenced by Cisco missing its fiscal first-quarter order forecast by over $500 million. While bookings from federal government customers held up, those from state governments fell 25%. The global service provider order growth rate was only 8%, while the U.S. rate declined 2% (which compares to an average of 20% growth over the prior three quarters). Orders varied by type of provider, with sales to cable operators down 35% while telcos maintained their strength. North American cable customers are purchasing fewer set-top boxes, as consumer spending remains under pressure and lower-cost competitors begin to enter the market. In general, it appears that some global service providers are cutting back on capital expenditures and will continue to do so for the next several quarters.

In light of the recent challenges, management has abandoned its goal of 12%-17% year-over-year top-line growth for the fiscal second quarter. It now expects revenues to be up 3%-5% in the January period and introduced a full-year 2011 estimate of a 9%-12% gain. Cisco does, however, foresee a return to the prior goal in the ``not-too-distant future'', assuming the resumption of good economic growth. In response, we have lowered our fiscal second-quarter earnings estimate by dime to $0.26 a share. These shares have traded materially lower on the news, leading the market, overall, to a sharp loss.

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 49% of 2010 revenues. R&D was about 13% of revenues.

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


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.