(Bloomberg) -- Cisco Systems Inc. gave a bullish sales and profit forecast for the current period, a sign that corporations are continuing to spend on their computer networks amid optimism China and the U.S. will resolve their trade conflict.
Sales in the fiscal fourth quarter will increase 4.5% to 6.5% from the same period a year earlier, the San Jose, California-based company said Wednesday in a statement. That indicates revenue of as much as $13.5 billion, compared with analysts’ average estimate of $13.29 billion. Adjusted profit will be 80 to 82 cents a share, in line with projections for 81 cents.
Cisco, whose equipment makes up the backbone of the internet and corporate networks, has returned to growth by revamping existing products and adding new software and services under a corporate makeover by Chief Executive Officer Chuck Robbins. The company’s forecast may help defuse concerns that companies are becoming less willing to invest in new hardware amid fears that tariffs on trade between the world’s two largest economies will slow or wipe out growth.
Cisco shares rose more than 3% in extended trading. The stock, which has gained more than 20% this year, increased less than 1% to $52.44 at the close in New York.
In the fiscal third quarter, which ended April 27, net income rose to $3.04 billion, or 69 cents a share, from $2.69 billion, or 56 cents, a year earlier. Revenue climbed to $13 billion. Excluding certain items, Cisco posted profit of 78 cents a share, compared with the average analyst estimate of 77 cents, according to data compiled by Bloomberg.
By region, the Americas led the way 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, rising 5%. Cisco’s security business revenue jumped 21% from a year earlier to $707 million. Hardware grew 5% and software expanded 9%.
Cisco’s status as the biggest maker of routers, switches and other gear used to connect computers means its earnings are seen as a broad indicator of corporate spending plans. The company gets only a tiny percentage of sales from China, where it’s been largely locked out of the market, and in one way may be a beneficiary of the ongoing trade dispute, which includes U.S. government attempts to block purchases of equipment from one of its biggest rivals, Huawei Technologies Co. Still, if business spending is hindered by an overall economic slowdown caused by trade uncertainty, Cisco’s sales could feel a hit, analysts have said.
Under Robbins, Cisco has made a string of acquisitions aimed at bringing in software and services that will ease the company’s dependence on hardware. He’s trying to build more predictable, recurring revenue by offering customers the ability to remotely manage and monitor their networks in order to make them more efficient and secure.
Cisco’s leader has said that transformation will take time as many of the new offerings require customers to shift to newer hardware that will support advanced functions and services.
(Updates with regional, divisional sales performance in the sixth paragraph.)
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack
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