Despite uninspiring fiscal fourth-quarter numbers, Cisco Systems, Inc. (NASDAQ:CSCO) still warrants a place in growth portfolios.
Yes, the Silicon Valley networking equipment giant announced it is slashing headcount by 4,000 — 5% of its workforce. Yes, orders from Asia and China were weak. And yes, CEO John Chambers said improvement in product lines from particular countries like Asia and China are “not at the pace we want.” But yes, Cisco Systems, Inc. (NASDAQ:CSCO) is still a buy .
In fact, Cisco looks like a better buy after word of the job cuts and the tempered outlook for the next quarter sent shares down some 9.5%. Why? The news and forward guidance wasn’t really that bad. Sales in the company’s original business of routing gear were flat, but revenue in Cisco’s biggest segment, switching equipment, rose 5 %. Additionally, Cisco Systems, Inc. (NASDAQ:CSCO)’s data center group, which includes its new business in server systems, increased 43 %.
The San Jose, Calif.-headquartered company earned $0.42, or $2.27 billion, in the quarter ending July 27, up 17% from $0.36, or $1.92 billion, in the same period a year earlier, the Wall Street Journal reported . Revenue climbed to $12.42 billion from $11.69 billion . Also included in the results was a $172 million charge tied to a patent settlement with TiVo .
The biggest maker of networking equipment — best known for hardware that helps data flow to, from, and around the Internet — counts communications carriers, as well as a cache of other companies, among its customers. Cisco Systems, Inc. (NASDAQ:CSCO)’s routers, operating systems, and voice-over-Internet-protocol products are indeed the heart of the Internet and cloud-computing sector. As the company cuts costs and streamlines operations, it also continues to grow.
As Barron’s recently reported, with the 2013 stock market bull run looking long in the tooth, yet by no means over, investors could benefit by picking stocks (like Cisco Systems, Inc. (NASDAQ:CSCO)) where earnings growth looks reasonable to relative revenue gains . The sector where that is achievable, according to Barron’s, is technology. Tech companies (like Cisco) are expected to increase earnings by 6.3% in the fourth quarter of 2013 on a 4.5% rise in revenue .
Reaching for the cloud
Cisco is increasingly investing in businesses that combine cloud-based services with LAN enterprise management. Over the next three years, the cloud market is expected to grow to over $177 billion, according to Gartner . Cisco Systems, Inc. (NASDAQ:CSCO)’s aim is to become the 800-pound gorilla in the IT industry by adding cloud services.
Without question, Amazon.com, Inc. (NASDAQ:AMZN) is the cloud leader, offering a plethora of options, from cloud storage for a few cents monthly to renting supercomputer-strength power for a whopping $5,000 an hour. In attempts to gain an even stronger foothold in the market, Amazon.com, Inc. (NASDAQ:AMZN) is adding new features to its cloud services and expanding its sales force. Although Amazon.com, Inc. (NASDAQ:AMZN)’s Web Services is the dominant player in public clouds, it lacks the credibility for mission-critical enterprise solutions.