Shares of Cisco Systems, the world's biggest supplier of Internet equipment, kept up their two-day upward spree after the company reported first-quarter results that slightly beat expectations.
Cisco shares traded at $19.02, up 41 cents, or another 2.2 percent in late trading, following Thursday's 6 percent spring. The Internet powerhouse said it was back on track for profitable growth despite continued concerns about the economy.
CEO John Chambers Thursday won praise from investors for having weathered a rough patch, especially boosting profit while gross margin of 61.2 percent was the same as the prior quarter.
The Cisco move could be a bellwether for other technology giants scheduled to report earnings soon including Dell and Hewlett-Packard. Chip designer Nvidia Thursday reported better-than-expected results.
As well Cisco is one of the 30 components of the Dow Jones Industrial Average, which was up 2.3 percent Friday on good news from Europe and the U.S. on economic prospects.
Cisco's first-quarter net income fell to $1.8 billion, or 33 cents a share, while revenue rose a better-than-expected 4.7 percent to $11.26 billion.
Analysts had expected the San Jose, Calif.-based company to report earnings of 40 cents a share on an adjusted basis. In fact, they came in at 43 cents, ahead of estimates.
We delivered a solid quarter, CEO John Chambers said. In every major market transition, we have historically emerged even stronger, with more market share and intense targeted focus.
Shares of Cisco Systems shares fell 3.8 percent Wednesday to $17.61 as nervous investors awaited the first-quarter earnings announcement.
Shares of Cisco rivals Juniper Networks and Ciena also rose both more than 4 percent Friday in apparent sympathy. Analysts had worried that the economic slowdown mnight impede building faster networks.
Cisco shares have gained 35 percent in the past three months, which could be an indicator the No. 1 vendor of Internet networking products has surmounted a rough patch. They tumbled after disappointing fourth-quarter results came out Aug. 10.
Analysts expected results from the maker of hubs and routers for the Internet to be much better this time.
The company confirmed it has made progress and is starting to see benefits from the cloud for the first time.
Cisco still has to pay costs of restructuring in the third quarter, when it fired 6,500 employees and closed a factory in Mexico with another 5,000 workers. They will fall below $100 million this quarter, far below the fourth quarter's $750 million.
To move more into the home and consumer electronics sector, Cisco acquired Scientific-Atlanta in 2006 for $6.9 billion. Now, it's been shutting factories where it made set-top boxes sold to carriers like Verizon Communications for its FiOS TV services.
Cisco's revenue appears to have been relatively immune from what CEO Chambers, 62, had warned would be a slowdown in orders from the public sector, or government agencies. They appear to have been overblown. The company reported new sales to phone companies in the U.S. and Germany.
Jefferies analyst George Notter told clients he was impressed by Cisco's moves to boost gross margin as an indicator it is starting to capture the benefits of its renewed value engineering efforts. He called sales to public sector accounts surprisingly strong.:
IBM, for example, reported its third quarter public sector sales were solid and that European orders were strong, despite fears of getting hammered by the European financial crisis.
As the No. I provider of switches and routers, ahead of smaller vendors like Juniper Networks and Huawei Technologies, Cisco has apparently won major new orders from several top U.S. service providers.
These customers are giants like AT&T and Verizon Communications, which constantly upgrade networks to move more traffic. They account for about one third of Cisco's revenue.
Cisco may also have benefited from the management shakeup at rival HP, where CEO Leo Apotheker was ousted in favor of former eBay CEO Meg Whitman on Sept. 25. The shakeup may have distracted the sales staff as well as customers.
Also, CEO Chambers is respected for his management skills. The West Virginia native promised investors in August the company would be better managed for profitability ahead.
Cisco's market capitalization is now about $102 billion, a far cry from 2000, when it was around $579 billion.
David Zielenziger is a veteran editor and journalist who has written for newspapers including the Baltimore Sun, Asian Wall Street Journal and EETimes, as well as for...