(Reuters) - Network equipment maker Cisco Systems Inc. reported stronger-than-expected quarterly revenue and profit as demand for switching equipment and routers helped make up for weak spending by the company's traditional telecom customers.
Cisco, which saw its shares rise 5.6 percent in extended trading on Wednesday, has been trying to make a transition toward a new cycle of high-end switches and routers.
"We executed very well in a tough environment, and I'd say our strategy is playing out like we expected," Chief Financial Officer Kelly Kramer told Reuters.
The switching business, which makes products that handle traffic at large internet data centers, brought in about 39 percent of Cisco's total hardware revenue in 2014, while the router business accounted for about 21.2 percent.
"They are seeing very robust switching sales," Needham & Co. analyst Alex Henderson told Reuters, adding that this was good news for others in the sector such as Infoblox Inc., Gigamon Inc. and F5 Networks Inc.
Revenue from Cisco's hardware business rose 7.8 percent to $9.08 billion in the company's second quarter ended Jan. 24. Revenue from services, which includes the company's software and cloud offerings, rose 4.6 percent to $2.86 billion.
Subscriptions generate more predictable recurring revenue than hardware sales. The services business is also less likely to suffer from sudden shifts in demand. "They may have the worst in the rear view right now," said Wedbush Securities analyst Scott Thompson.
The quarter showed the best balance of growth across all of the company's geographies, products and segments, Chief Executive John Chambers said in a statement.
Cisco, which raised its quarterly dividend by 2 cents to 21 cents, said its net profit rose to $2.4 billion, or 46 cents per share, in the quarter from $1.43 billion, or 27 cents per share, a year earlier. Total revenue rose 7 percent to $11.94 billion. On an adjusted basis, the company earned 53 cents per share.
Analysts on average had expected earnings of 51 cents per share on revenue of $11.8 billion.
Cisco forecast an adjusted profit of 51-53 cents per share for the current quarter, in line with analysts' estimates. Kramer added that while Cisco has made progress in the second quarter, the company will continue to be affected by headwinds from emerging markets and telecom service providers. The company also forecast revenue growth of 3-5 percent.
Cisco's shares closed at $26.93 on the Nasdaq.