Cisco Systems, Inc. (NASDAQ:CSCO) reported its second quarter earnings yesterday and the stock dipped despite a stellar quarter. The company beat estimates on both earnings and revenue estimates and provided a strong outlook for the quarter. The investors should focus on solid growth in switching, strong FCF and 8% growth in North America revenue. The only point of concern can be the shifting revenue base and the risk it is creating for the investors. I believe these earnings present a stronger case for Cisco and the stock is still a strong buy. If we compare it to a International Business Machines Corp. (NYSE:IBM), it doesn’t only provide a better dividend yield; but is trading at a cheaper valuation.
The company is currently facing a contracting economy and a changing business landscape. As the hardware landscape evolves, the customers are not only asking Cisco to provide hardware but innovative solutions due to a radically changing enterprise environment. A very good example of this phenomenon is the recent introduction of Research In Motion Ltd (NASDAQ:BBRY)’s BB10 to the world. The new operating system is being launched in all other locations except America. The new OS has a lot of new features that have excited both techies and consumers. However, an exciting feature that stands out is the ability of this device to connect to the enterprise systems, behind the firewall. This will give users access to essential data in real time and essentially transform the hardware requirement of organizations. This is just one example of the evolving business landscape Cisco is operating in, as the company faces the challenge of providing solutions that can interconnect various sensors and handhelds.
Cisco released its quarterly earnings yesterday and surprised the market with better than expected profits. The market was expecting Cisco to report an EPS of $0.48 and revenue of $12.06 billion. The company beat both earnings and revenue estimates by reporting EPS of $0.59 and $12.18 billion. Despite these stellar results, the company’s stock lost almost 1.5% of its value on earnings.
There was a lot of good from this earnings report. Other than beating both earnings and revenue there was healthy growth in its margins, which were better than consensus at 62.3% as compared to 61.7%. The company reported healthy growth of 6.2% y/y in net income, which increased to $2.7 billion for the period. The growth in net income was driven by both better sales, lower taxes, and a more profitable sales mix.