On August 15th, Cisco Systems (CSCO) announced better than expected earnings results and momentum. Cisco’s adjusted non-GAAP EPS of $.47 exceeded consensus analyst estimates by 3.3% and the best part of the company’s results was that it reported nearly $520M less in “adjustments to GAAP operating expenses in Q4 2012 versus Q4 2011 levels. The company generated 4.4% sales growth in Q4 2012 versus prior year levels and was able to generate positive operating leverage from its many restructuring programs, which saw operating expenses decline by 5% on a non-GAAP adjusted basis and nearly 13% on a GAAP-reported basis. This enabled the company generate a 17.5% boost in its operating EPS and a 64% in its reported EPS, as well as minimizing the disparity between GAAP and operating EPS. The best part of the news was that CSCO boosted its quarterly per share dividend by 75% to $.14 in FY 2013 from its current dividend of $.08.
Products and Services: CSCO’s switching revenue was up 3% and we were pleased to see stability in this product’s gross margins. Gross margin levels on CSCO’s Nexus 7000 switching product improved approximately 10 points over the past eight quarters. Routing revenue grew 2% and the market shift from wireline to wireless providing competitive advantages for CSCO. Collaboration revenue was up 3% for FY 2012 due to increases sales from SaaS and software-based offerings, which now represents ~50% of CSCO’s overall collaboration business. Wireless had a very strong year with revenue up 19% with continued wireless LAN upgrades and deployments driving strong growth. Security revenue was up 12% reflecting the growing requirements of security and cloud, as well as BYOD deployment. CSCO’s data center business had strong growth with revenues up 87%, CSCO’s data center strategy by focusing on innovation and its convert stock architectural approach to meet the networking and computing needs of its customers.
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