Cisco shares dip as it reports a 25% drop in after-tax profits

Cisco Systems’ after-tax profits dropped by a 25 per cent in the latest quarter, as price declines and a shift towards a less profitable product mix confirmed Wall Street’s expectations of a weak earnings report for the networking equipment company.

Cisco also forecast that its revenues, which fell by 2 per cent in the latest period, could fall by the same amount in the current quarter, the third of its fiscal year. However, the expected decline partly reflects the fact that last year’s third quarter was a week longer. Adjusting for that, Cisco would return to mid-single digit revenue growth.

The news pushed the company’s shares down by around 1 per cent in after-market trading on Wednesday, though it was broadly in line with market expectations. Cisco reported revenue of $11.6bn and pro forma earnings per share of 57 cents, compared to the 56 cents analysts had forecast.

The revenue decline was focused on the company’s core routing and switching divisions, which saw sales drop by 10 per cent and 5 per cent, respectively. In contrast, revenues from the newer security business increased by 14 per cent, while sales of collaboration and wireless products edged up 4 per cent and 3 per cent.

The latest earnings figures showed an erosion in the profit margin on Cisco’s products, on the non-GAAP basis Wall Street judges the company. The company blamed a near-1 percentage point decline, to 62.4 per cent, mainly on pricing, with product mix also contributing to the fall.

Based on formal GAAP accounting rules, Cisco’s earnings per share fell by 24 per cent, to 47 cents.