Cisco: Some Sales, Some Profits, Some Sizzle

Whichever way you cut it, Cisco’s second quarter for fiscal 2005 was not sizzling. Sure the earnings came out a wee-bit ahead of Wall Street expectations, but the sales were off the mark and well, the quarter lacked the classic Cisco sizzle.First the facts – sales were $6.06 billion, little less than analysts estimates of $6.13 billion. Net income was $1.4 billion, or 21 cents a share. “This is a marginal disappointment. Revenues were slightly shy,” Erik Suppiger, an analyst with Pacific Growth Equities told CNN/Money.

sectorcompyoveryearcisco.jpgsectorcomp2005.jpgBut that’s half the story – inventories are up 3.7% from the previous quarter. The sales were up a mere 1.5% from the first quarter fiscal 2005. The company forecast slower growth. Clearly the bread-and-butter router-and-switch business is facing competitive and price pressures. Year-over-year, the router sales declines 97 million, but were up marginally from the first fiscal quarter 2005. Switch sales declined by about $160 million from the first quarter.

The saving grace for the company has been the storage and home networking business. Storage sales are up year-over-year 70%; home networking and VoIP sales are up year-over-year 40%. The New York Times reports that Cisco shipped, “570,000 Internet phones in the second quarter, while the company’s home networking division, Linksys, shipped 470,000 Internet voice adapters in the first quarter they were available.” In comparison, Cisco shipped 500,000 IP phones in the first quarter. Other product categories like optical etc, showed a 30% year-over-year-gains.

Why there could be dark days ahead for technology?

Inventing Money: Other important things on the call included the discussion about Federal government not spending on infrastructure but on tanks and bullets. CSCO does not expect government to come back for another two quarters. This could be a negative for FDRY which drives close to 25% of its revenues from government. Also, management noted that Japan, France and Germany are all having economical issues which is not helping sales. This does not bode well for all technology vendors since these three are some of the biggest economies in the world.