Cisco's earnings fall, but beat expectations
While Cisco's earnings beat expectations, a closer look shows there are still some problems.
Cash flow from operations fell significantly, an ominous sign. Cash flow from operations in its fiscal fourth quarter of 2009 were $2 billion, compared to $3.5 billion in the same quarter last year. This is indicative of the broad and continued slowdown in technology gear purchasing that Cisco CEO John Chambers had warned about in earlier Street talks. Day sales outstanding in accounts receivable grew by seven days as customers took longer to pay for purchases.
Cisco's Chambers told analysts he thinks the company may have finally hit bottom in its cycle but Chambers has expressed similar sentiments in the past quarter as well. The Associated Press reported that Cisco beat analysts expectations by 2 cents per share, according to the Thomson Reuters survey, but that wasn't enough to wow investors who likely had been expecting a stronger beat. Also, the sales decline was right in line with analyst expectations. The fall in operating cash flow is a more important number than net earnings, as it is the best indicator of how much cash Cisco is throwing off from ongoing operations.
All told, Cisco's struggles contrasts with other tech companies that have posted better results. Smartphone makers Apple (AAPL) and Research In Motion (RIMM) have done very well, driven by strong consumer demand. Likewise, many enterprise software companies such as IBM (IBM) and Oracle (ORCL), have posted strong numbers, largely through strong fiscal management and cost controls. Cisco, which has an enormous fixed cost base because it is primarily a hardware company, can't pare back to the same degree and still maintains its core production and sales capabilities. Add to that the fact that networking equipment is often the last thing to get an upgrade because it is the furthest from the end user and that has spelled trouble for Cisco.