Cisco Systems Inc. shares dropped before Wednesday’s opening bell as the company reported lower quarterly earnings after Tuesday’s close, though its sales rose more than expected as corporate customers boosted technology spending.
Cisco, the world’s largest maker of equipment that directs Internet traffic, Tuesday posted a lower quarterly profit after an accounting charge.
“It is becoming increasingly clear that the global economy is improving,” Cisco President and Chief Executive John Chambers said in a statement.
Investors see Cisco as a benchmark for corporate and government spending because about 75 percent to 80 percent of its revenue comes from those customers. The rest comes from the telecom sector, where spending by telephone companies appears to be stabilizing and even increasing in areas Cisco serves, including Internet voice transmission.
“The key for the company is their enterprise business and particularly the U.S. enterprise business,” said Sean Campbell, principal with Campbell Asset Management, which holds Cisco shares.
“This is one of the first glimpses we get,” Campbell said, referring to spending on information technology.
The San Jose, California, company reported a net profit in its fiscal second quarter of $724 million, or 10 cents a share, compared with $991 million, or 14 cents a share, in the year-ago quarter. The quarter included a one-time noncash charge of $567 million, or 8 cents a share, related to a charge for an accounting change related to an acquisition.
Excluding one-time items, Cisco’s profit was 18 cents a share.
Sales in the quarter ended Jan. 24 rose by almost 15 percent from last year to $5.4 billion and were up 5.8 percent from the previous quarter.
Analysts were expecting Cisco to post a second-quarter profit before one-time items of 17 cents a share on sales of $5.29 billion, according to Reuters Research, a unit of Reuters Group Plc.
Cisco said last November it expected sales to rise 1 percent to 3 percent from the previous quarter’s $5.1 billion. Chambers said the following month that corporate customers were slightly boosting their information technology spending for 2004.
However, some analysts had recently said investors would be disappointed if Cisco’s sales growth was less than 5 percent after smaller rival Juniper Networks Inc. last month posted a strong quarter and offered a bullish outlook for the current quarter.