Cisco's FYQ2 surpasses forecasts, but remains cautious about European market

Cisco (Nasdaq: CSCO) reported on Wednesday that fiscal year Q2 revenue rose 5 percent to $12.1 billion year-over-year, and forecast continual softness in the European market.

Cisco Q2 FY 2013 earnings

Click here for selected slides from Cisco's investor presentation.

Its results were in line with analysts' earnings forecasts of $12.06 billion. The vendor's net sales for the first six months of fiscal 2013 were $24.0 billion, up from $22.8 billion for the first six months of fiscal 2012.

In its core switching business, revenues rose 3 percent, while its Nexus data center switching portfolio grew more than 20 percent in the quarter. Overall, the data center segment grew 65 percent.

"We continue to see strong growth across all geographic regions with more than 20,000 UCS customers, up 87% year-over-year and more than 3000 channel partners to actively growing UCS worldwide," said John Chambers, CEO and Chairman of Cisco, during the earnings call.

However, the vendor's routing segment was down six percent due to timing of some of deals with its large customers and what Chambers said was a "challenging environment in a few key geographies such as Europe and China."

Despite some slowdowns in the router business, Shaw Wu, an analyst at Sterne Agee, said that Cisco will play a key part of the ongoing IP transition that service providers and businesses have embarked upon.

"We believe CSCO is well-positioned to take advantage of the continued transition to IP networks and exploding demand of wireless infrastructure due to proliferation of mobile devices," he said.  

Despite declines in the routing business, the edge remained a bright spot as the ASR 9000 edge product grew about 30 percent year-over year.

From a geographic perspective, the American region grew 2 percent with the U.S. Enterprise and U.S. Commercial segments both rising 9% year-over-year. The U.S. Service Router segment, however, was relatively flat.

The Asia Pacific, Japan and China region collectively grew at 3 percent, while India grew by 50%, and Japan grew in the mid-single digits. One area of concern was China, which was declined about 4 percent.  

"While we believe that China decline may last for several quarters, we're committed to the China market, our customers, partners, employees, and the Chinese people," Chambers said. "We are confident that our growth will return to the double digit growth if we execute properly."

Meanwhile, the company narrowed its decline in Europe, Middle East, Africa, and Russia regions to 6 percent from 10 percent in recent quarters.

Chambers said that "We are seeing some stabilization, but still too early to call a recovery across Europe."

Q2 FY 2013 was a transitional quarter for Cisco. During the quarter it continued to beef up its software capabilities via targeted acquisitions such as Cariden Technology and completed its exit out of the consumer business by selling its Linksys product line to Belkin.

Looking forward to Q3 FY 13, the company forecast revenue to grow between 4-6 percent on a year-over-year basis. On an Earnings per Share (EPS) basis, it expects to report 48-50 cents, which is consistent with analyst expectations of 49 cents.

Frank Calderoni, CFO of Cisco, said during the earnings call that its forecast "assumes that our divestiture of Linksys product line which has been approximately 1% of our product revenue process made quarter and will no longer be contributing to our top line."

Shares of Cisco were listed at $20.83, down 0.31, or 1.44 percent in morning trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- here's the earnings transcript (reg req.)
- Reuters has this article

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