Cisco Confident

Networking giant Cisco reported strong Q4 and fiscal year 2008 results yesterday that narrowly beat analyst estimates. Its shares soared on the company’s positive outlook that the economic slowdown will be relatively short-term.

In my Online Video Beneficiaries series last year, I hinted at consolidation among the dwarfs to challenge Cisco. Foundry recently was acquired by Brocade, and other players like F5 and Juniper are also offering increasingly strong competition in their respective niches, which is healthy for the industry in general.

For Q4, Cisco’s revenue grew 10% y-o-y to $10.4 billion versus the Street estimate of $10.3 billion. Net income rose 4% to $2 billion, or $0.33 per share. Non-GAAP EPS was $0.40, versus analyst estimates of $0.39.

By segment, revenue from Routers went up 8% to $2 billion driven by strong high-end router sales, with CRS-I growing 85%. Switches revenue was up by 5% y-o-y to $3.5 billion driven by growth in the fixed switching portfolio. Advanced Technologies revenue was up 15% y-o-y, led by unified communications with 29% growth and application networking services with 30% growth.

By region, Asia Pacific y-o-y order growth was 19% with China above 30%, India at 20% and Japan at 10%. Despite a challenging economic environment, Europe grew 11%. In the U.S. and Canada, order growth was approximately 7% y-o-y.

For the full year 2008, revenue grew 13% to $39.5 billion. Last year, the y-o-y growth rate was 23%. Net income was $8.1 billion or $1.31 per share compared with $7.3 billion last year.

There were concerns during the recent fiscal year about weakness in Cisco’s emerging markets. In fiscal year 2008, the Emerging Market theater, which does not include Asia, grew 19% with Mexico at 32%, Russia 23%, and Brazil 48%. Asia Pacific grew 20% with China at 30%, India at 32%, and Japan at 5%. So far, the competitors have not been able to put up any significant fight in these regions.

Cisco repurchased shares worth $1.35 billion in the quarter and $10.4 billion in FY08. It is now left with authorized repurchase funds of $8.4 billion. At the end of Q4, headcount was 66,129, a net increase of approximately 900 from Q3 FY08. Hires in engineering, sales, and services accounted for much of the increase.

As for acquisitions, Cisco plans to buy Pure Networks, Inc., a leader in home networking management software and tools. In the quarter, it completed the acquisition of data center technology vendor Nuova Systems and digital-service management firm DiviTech.

Due to economic uncertainty, Cisco did not give forecasts for the full year. It expects revenue growth of 8% in Q1 and 8.5% in Q2. Wall Street expects revenue growth of 8.8% in Q1 and 9.5% in Q2. The stock is currently trading around $23 with a market cap of about $134 billion. It hit a 52-week low of $20.72 on July 15.