Cisco strikes cautious note for fourth quarter

Cisco (NASDAQ: CSCO) reported record revenues in its fiscal third quarter, which ended April 28. However, company management indicated that macroeconomic conditions, particularly in Europe, continue to hamper its progress.

Cisco (NASDAQ: CSCO) reported record revenues in its fiscal third quarter, which ended April 28. However, company management indicated that macroeconomic conditions, particularly in Europe, continue to hamper its progress.

Cisco accrued net sales of $11.6 billion and GAAP net income of $2.2 billion ($0.40 per share). Both figures exceeded consensus financial analyst predictions. The revenue number represented an increase of 7% year on year.

John Chambers, Cisco’s chairman and CEO, took the opportunity on a conference call with analysts to tout the performance as a sign that the shift in strategy he launched last year (see “Cisco: Layoffs are coming”) is working.

“We believe our vision and strategy are working. Our value proposition and mindshare with our customers are very strong,” Chambers said. “One example would be our traction and relative performance with our service provider customers, which represents about a third of our total business and where we believe we have taken wallet share almost across the board. We remain number one or number two in almost every product market where we play. At the same time, we have maintained or gained share year-over-year in the majority of product categories across service provider, commercial, and enterprise in the most recent quarter for which the market share data is available. Additionally, we are often named the top IP vendor by our very important channel partners.”

While the optical portion of Cisco’s activities saw the finalization of the Lightwire acquisition during the quarter, overall the segment had a rough three months. Revenues for the optical product line decreased sequentially, offsetting gains from other elements of Cisco’s NGN Routing segment to leave that business sequentially flat.

Looking forward, Cisco sees a few sources of headwinds. One is Europe, where product orders were flat during the quarter, despite gains in Russia and emerging markets in the region. “We have seen the issues of southern Europe expand. Central and Northern Europe have their own set of challenges,” Chambers said.

“As you have seen in our enterprise order growth and the trends over time, we are seeing a hesitant spending environment,” Chambers added later, although he immediately said this customer space had not presented the company with any new challenges, nor had the space experienced a downturn. “We are seeing longer sales cycles, more signoff, and smaller deal size,” he clarified. “Again, but is all focused in terms of a more cautious environment and uncertainty from a CEO perspective.”

These factors led the company to predict year-on-year revenue growth of 2% to 5% in the fourth quarter of fiscal 2012, a smaller increase than financial analysts hoped to see.

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