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Cisco results beat Street; CEO sees challenge in Europe

A sign marking a Cisco office is pictured in San Diego, California November 12, 2012. REUTERS/Mike Blake
A sign marking a Cisco office is pictured in San Diego, California November 12, 2012. REUTERS/Mike Blake

By Nicola Leske

(Reuters) - Cisco Systems Inc's quarterly results topped Wall Street views on Wednesday amid early signs tech spending was on the mend, but CEO John Chambers warned the picture was mixed and parts of Europe remained challenging.

The company's shares were down 1.7 pct in after hours trading after Cisco reported that revenue growth in Europe - which accounts for a quarter of its business - was down 5 percent. Revenue in the Americas was up 9 percent and was 8.3 percent higher in the Asia-Pacific region.

Chambers pointed out that business in Germany and Northern Europe was beginning to give reason for cautious optimism, but Southern Europe remained tough in economic terms.

"We are seeing early signs of stabilization in government spending and also in probably a little bit over two thirds of Europe," CEO John Chambers told analysts on a conference call after the results were announced.

"But I want to watch that for at least another quarter before I get really excited about it."

Chambers comments on economic development are generally watched closely because Cisco is considered a sector bellwether due to its global scale and diverse client base.

For the current quarter, which runs until the end of April, Cisco expects revenue to grow 4 percent to 6 percent compared with a year ago.

It forecast earnings per share, excluding items, in a range of 48 cents to 50 cents, in line with average analyst expectations of 49 cents.

JPM Securities analyst Erik Suppiger said revenue was a particular focus for investors.

"People are pretty confident about Cisco's ability to cut costs and maintain gross margins," Suppiger said.

"The metric people don't have as much confidence in is revenue," he said. "There was upside to consensus in the second quarter, but it was fairly modest."

Suppiger said Cisco's stock had been trading higher before the results and investors had been hoping for more comments on recovery.

"He certainly said positive things about the federal sector and positive signs in Europe, but there is not a lot of tangible evidence that we have turned the corner," Suppiger said.

For its fiscal second quarter that ended on January 26, Cisco reported that revenue rose 5 percent to $12.1 billion versus a year ago. Analysts, on average, were expecting $12.06 billion, as compiled by Thomson Reuters I/B/E/S.

Income, excluding items, rose 6.2 percent to $2.7 billion, or 51 cents per share, 3 cents above analysts' average estimate of 48 cents a share.

Chief Financial Officer Frank Calderoni said demand for equipment to enable data centers and cloud computing were the main drivers in Cisco's results, as well as demand for infrastructure for wireless networks, mobility and service provider video.

Cisco's core business is routers and switches, which direct Internet traffic, but the company has begun to focus on data centers, enabling and providing cloud computing technology and video platforms, as well in its goal to become the No. 1 Information Technology company.

Its data center business showed 65 percent growth compared with the previous year, while its wireless business and service provider video offerings grew 27 percent and 20 percent, respectively.

"They did say they got a benefit from taxes," Shaw Wu, an analyst at Sterne Agee, said of the second quarter result. "When you (take) that out, it's 50 cents. That still beat by 2 cents."

(Additional reporting by Sinead Carew. Editing by Tim Dobbyn, Leslie Adler and Andre Grenon)

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