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Tuesday, 17 November 2015 12:47

Cisco's financial results reflect growing demand for switches

Cisco Cisco

Financial results for the first quarter of 2016, for Networking Giant Cisco Systems were up and down, with router sales falling as switches grew.

Product sales rose 4%. Services rose 1%. Products sold into data centres rose 24%. Sales of collaboration products rose 17%. Sales of wireless and security products both rose 7%. And sales of switches, Cisco’s biggest business, accounting for about 32% of sales, rose 5%.

Offsetting this, router sales fell 8% and sales of video products to cable service providers fell 2%.

Cisco’s key measure of profitability—gross margin—also fell slightly year-on-year to 63.2% from 63.3%a year ago.

The company ended Q1 with $59.1 billion in combined cash and short-term investments.

The official release said, “Cisco reported first quarter revenue of $12.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.4 billion or $0.48 per share, and non-GAAP net income of $3.0 billion or $0.59 per share.”

Chuck Robbins, Cisco chief executive officer put a positive spin on it all.

He said, “Q1 was a very strong quarter. We are accelerating our ability to deliver on growth opportunities, aggressively driving our cloud business, and delivering continued strength in our deferred product revenue, as we sell more of our portfolio in software and cloud models.

"We guided to solid growth in Q2 after lower than expected order growth in Q1, which was driven largely by the uncertainty of the macro environment and currency impacts. Despite these headwinds, I believe we are executing very well.

"We are moving very fast to capture new opportunities and I feel good about how we are positioned for the second half of the year."

Industry analysts were not so upbeat and Cisco’s shares fell by more than 5% in after-hours trading.

Cisco posted earnings of 59 cents a share, up 9 percent from a year ago.

The company revised its forecast for Q2 earnings.

It now expects to post between 53 cents and 55 cents a share, lower than the 56 cents expected, and for sales to be up 2% year-on-year.

In a related story, Ericsson, a $33.3 billion global mobile communications powerhouse and Cisco, the $49.2 billion enterprise partnership to better take on a rapidly shifting global market and combat the rise of such rivals as China's Huawei Technologies Co.

Ericsson CEO Hans Vestberg CEO said, “Initially the partnership will focus on service providers, then on opportunities for the enterprise segment and accelerating the scale and adoption of IoT services across industries.

“For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key move forward in our transformation."

Cisco will pay licensing fees to Ericsson under a broad patent portfolio licensing agreement.

The two companies say together they have a combined 56,000 patents and a combined R&D budget of $11 billion.

Official results here: 

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