Analyzing Cisco (CSCO)

By Douglas A. McIntyre Published Feb 7, 4:08AM EST

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By Yaser Anwar, CSC of Equity Investment Ideas

Cisco’s Q2 results were better than expectations with revenue coming in $8.4 billion towards the high end of the guidance of $8.3 billion. EPS was $0.33 thanks to better operating margins and the R&D tax credit. Gross margins came in at of 64.8% and CSCO ended the Q with share repurchases north of $3 billion.

There is a secular trend that is fueling investor expectations- the growth of video usage being one of the key drivers. It is evident that the Street views the results positively and analysts expect CSCO to raise its 07 sales guidance close to 20% YoY. With more than 50% market share, CSCO leads the overall routing market. For core routers, which have speeds of more than 2.5 gigabits/second, CSCO and Juniper Networks dominate the market.

Management announced that it plans to present two TelePresence systems each to the governments of five nations in the Emerging Markets as a means to improve communications and collaboration.

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Also, management noted that 30% of SFA revenue was derived internationally, suggesting international expansion is now underway. Management also eluded to moving some of SFA manufacturing to a Cisco-outsourced model, potentially resulting in some additional operating leverage going forward.

Router revenue grew 17.9% YoY thanks to ongoing successful penetration in the service provider market and continued momentum with the CRS-1 solution. CRS-1 revenue surpassed $150 million during the Jan 07 Q.

Switching revenue growth came in at +13% YoY. Cisco’s switching results continue to be driven by favorable LAN upgrade cycle alongside CSCO’s strong modular architecture complimenting an increased focus on network convergence within most enterprise type environments.

Investors were glad to see that CSCO continues to generate heaps of cash, $2.66 billion in the Q vs guidance of $500-$700 million. Also, investors should keep in mind that CSCO’s growth is dependent on a) IT spending and b) Competitive pressures could affect pricing and margins.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.