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Feb 14, 2018

Cisco posts revenue rise as software transition kicks in

FILE PHOTO: Newly installed phone made by Cisco

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Cisco Systems Inc (CSCO.O) reported its first rise in quarterly revenue in more than two years and forecast upbeat current-quarter profit, as the network gear maker's years-long efforts to transform into a software-focused company begins to pay off.

Shares of the Dow component, which also benefited from growth in its switching business, jumped 7.1 per cent to US$45.09 in after-market trading on Wednesday.

Cisco raised its buyback program by US$25 billion, taking the total to about US$31 billion.

The company said it plans to bring back US$67 billion of funds held overseas in the third quarter of fiscal 2018 by taking advantage of the recent changes to the U.S. tax laws.

However, the new tax laws led to an US$11.1 billion charge, pushing the company to post a loss for the second quarter.

Faced with sluggish demand for its traditional switches and routers business from telecom carriers, Cisco has been moving to a software- and subscription-focused model.

"We are clearly seeing the results of the strategy we've articulated over the last 10 quarters," Chief executive Chuck Robbins said on a post-earnings call.

Revenue from its infrastructure platforms category, which includes switching, routing and data center businesses, rose 2 per cent to US$6.7 billion.

The company is also betting on subscription services for a recurring stream of revenue.

"I'm most impressed at the growth in software subscriptions as Cisco five years ago was primarily about hardware," said Patrick Moorhead, principal analyst at Moor Insights and Strategy.

Cisco has also doubled down on M&As to build up its software business. Since Robbins took charge in July 2015, the company has acquired Internet-of-Things firm Jasper Technologies, software makers Broadsoft and AppDynamics Inc, among others.

The Broadsoft acquisition, which closed earlier this month, helped boost Cisco's third-quarter adjusted profit. The company forecast adjusted profit between 64 cents U.S. and 66 cents U.S. per share, above analysts' estimate of 63 cents U.S.

Cisco posted a net loss of US$8.8 billion, or US$1.78 per share, in the second quarter ended Jan. 27, compared with a profit of US$2.3 billion, or 47 cents U.S. per share, a year earlier.

Excluding items, the company earned 63 cents U.S. per share.

Revenue rose 2.7 per cent to US$11.9 billion.

Analysts on average had expected a profit of 59 cents U.S. per share and revenue of US$11.8 billion, according to Thomson Reuters I/B/E/S.