Cisco's Upbeat Forecast Signals Strong Corporate Expenses

(Bloomberg) – Cisco Systems Inc. provided a bullish sales and profit forecast for the current period, a sign that companies are continuing to spend on their computer networks despite a trade dispute between China and the US slowing global economic growth.

Sales in the fourth quarter will increase 4.5% to 6.5% from the same period the year before, said San Jose, California-based company Wednesday in a statement. It indicates a turnover of as much as $ 13.5 billion, compared to analysts' average estimate of $ 13.29 billion. Adjusted earnings will be 80 to 82 cents per share, in line with forecasts for 81 cents.

Cisco, which is the backbone of the internet and corporate network, has returned to growth by revamping existing products and adding new software and services during a corporate transfer by CEO Chuck Robbins. The company's forecast can help uncover concerns that companies are less willing to invest in new hardware among fears of tariffs on trade between the world's two largest economies.

Cisco's perspective takes into account the possibility that the US will follow up on its threat to pay a 25% tariff on a number of goods made in China, Robbins said.

"We are proud of what the teams have achieved in a very complicated world, but it will remain a complex world," said CEO in telephone interview. The company has experience in moving the production sites and has done the work needed to reduce the effect of a taxi ride, he said.

Cisco said orders are increasing, especially from security device customers, because of the work done over the past two years to revolutionize their products. It has made the offerings better suited to the more complex networking and computing needs of companies, using a mix of internal networks and outsourcing, Robbins said.

Cisco shares rose about 3% in extended trading. The stock, which has achieved more than 20% this year, increased less than 1% to $ 52.44 near New York.

In the third quarter, which ended April 27, net revenues increased to $ 3.04 billion, or 69 cents a share, from $ 2.69 billion, or 56 cents, a year earlier. Revenue climbed to $ 13 billion. Except for certain items, Cisco made a profit of 78 cents per share compared to the average analyst estimate of 77 cents, according to data prepared by Bloomberg.

By region, America led in the quarter with a 9% gain in Sales from a year ago, excluding a divested business, to $ 7.7 billion. Europe was also up and increased by 5%. Cisco's security business revenue jumped 21% from the previous year to $ 707 million. Hardware grew 5% and software expanded 9%.

Cisco's largest manufacturer of routers, switches, and other equipment used to connect computers means that earnings are viewed as a broad indicator of corporate spending plans. The company only gets a small percentage of sales from China, where it is largely locked out of the market, and in a way may be a recipient of the ongoing trade damage, which includes the US government's attempt to block the purchase of equipment from one of its major competitors, Huawei Technologies Co. Nevertheless, if corporate spending is hampered by a general economic downturn caused by trade uncertainty, Cisco sales may feel a blow, analysts have said.

During Robbins, Cisco has made a number of acquisitions aimed at bringing in software and services that will ease the company's dependency on hardware. He tries to build more predictable, recurring revenue by offering customers the ability to remotely manage and monitor their networks to make them more efficient and secure.

Cisco's leader has said that transformation will take time so many of the new deals require

(Updates with CEO's comments in the fourth paragraph.)

To contact the reporter on this story: Ian King in San Francisco on inanking @ bloomberg.net [19659015] To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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