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Wednesday, November 08, 2006

Cisco Above & Beyond the Call of Duty

Yesterday I noted that Cisco Systems (CSCO) would need to go above and beyond expectations to impress the street, and that is just what the company did. CSCO closed up 1.05% at $25.10 in normal trading and that was already a two-year high, but its shares are up another 7% to $26.85 in after-hours trading. CSCO showed us net income of 0.26 GAAP, but non-GAAP EPS was $0.31 on revenues of $8.18 Billion. The street was only looking for $0.29 EPS and revenues of $7.9 Billion.

CSCO also forecast for a 24% to 25% rise in revenues over last year, above the 21% approximate growth. On a standalone basis without the Scientific Atlanta deal its CEO John Chanbers said the revenue growth would have been 14% to 15%, at the higher-end of a 10% to 15% range.

The company also said its book-to-bill ratio in the current quarter is above 1.0, which the company said is unusual for a seasonally weak quarter. The company bought back 66 milllion shares at an average price of $22.85 per share in the last quarter. It still holds some $19.5 Billion in cash and equivalents.

If you look at the quote from Chanbers, there is something else to note: "We are in the midst of a market inflection that is changing the landscape of networking, and we believe the network is becoming the platform for the next generation of IT, revolutionizing the way people connect, communicate and collaborate. We laid the cornerstones for our strategy to capture this shift several years ago and believe we are now uniquely positioned for continued growth and increased share of our customers' total IT spend."

That quote sort of telegraphs that acquisitions for the near-future will be more niche and segment focused rather than broad-based into new large-scale additions to its broader product line. I have noted in the past that the company has transformed into a company that routes and controls almost every aspect of data packets essentially from the point that the wires attach to the back of servers all the way to the point that the cords (or wireless) reaches your computer (or PDA). The company is telling you they have achieved that goal.

Cisco's (CSCO) average price target was just north of $26.00 before the report, and that is higher than the old $23.00-ish target before last quarter. This after-market trading activity is implying that Wall Street will be raising its price targets for CSCO shares tomorrow.

The street is treating it so well that even all the competitors are running after-hours: JNPR +3%, FDRY +3.25%, EXTR +1.5%, MOT +0.5%. CY (chip supplier) +0.5%, CLS (outsourced manufacturer) +0.25%. CNXT +0.5%, RBAK +1.25%, ARRS +0.25%, MRVL +1.25%, BRCM +2.8%. Chambers had been criticized in the pact for alluding to the companies growth as being highly correlated to GDP, but they have come a long way since that stance now.

Jon C. Ogg
November 8, 2006
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