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Nov 15, 2017

Cisco profit beats on strength in security business

Cisco Systems inches past Q1 profit expectations, but growth still negative: Money manager

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Cisco Systems Inc reported a better-than-expected quarterly profit on Wednesday, driven by gains from its newer businesses such as security, which more than offset declines in its traditional switches and routers business.

This shows the technology leader has begun to turn a corner as it shifts focus from hardware to software and recurring subscriptions, several analysts said.

"Cisco has been shifting its business model toward subscriptions, especially in the faster-growing segments like security," said Tim Green, analyst with the Motley Fool. "That effort may be starting to bear fruit."

The world's largest network gear maker forecast second-quarter adjusted profit of 58 cents US to 60 cents US per share, largely above analysts' estimate of 58 cents US, according to Thomson Reuters I/B/E/S.

Cisco forecast a revenue increase of one to three per cent for its second quarter, which would end a streak of eight quarters of year-to-year decline.

"The forecast is better than feared and speaks to a company that has started to turn the corner," said Daniel Ives at research firm GBH Insights.

The company's shares rose more than five per cent to US$35.95 in after-hours trading.

Revenue from Cisco's security business, which offers firewall protection and breach detection systems, rose eight per cent to US$585 million.

"We've been in a multi-year journey selling software and subscriptions against the threat intelligence and the malware intelligence that we have. And I think that's what's continuing to pay off," Chief Executive Charles Robbins said on a post-earnings call.

Cisco is focusing on high-growth areas such as security, Internet of Things and cloud computing like other legacy technology companies.

"If the new services add revenue next year, they will seem very cheap, and the dividend makes them a great add for a conservative portfolio," said Phil Davis, CEO of PhilStockWorld.com, an investment advisory service.

Recurring revenue from Cisco's subscription businesses accounted for 32 per cent of total revenue in the first quarter, up three points year-to-year. The company also reported deferred revenue of US$18.6 billion, up 10 per cent year-to-year, as a result of Cisco's new focus on software and services, Green said.

Net income rose to US$2.39 billion, or 48 cents US per share, from US$2.32 billion, or 46 cents US per share, a year earlier.

Excluding items, the company earned 61 cents US per share. Revenue fell 1.7 per cent to US$12.14 billion.

Analysts on average had expected Cisco to report a profit of 60 cents US per share on revenue of US$12.11 billion.