Cisco beats profit target, says has soft supply chain of the rates

(Reuters) – Cisco Systems Inc reported better-than-expected quarterly profit on Wednesday and gave an upbeat sales forecast for the current period, saying that a minimum sales exposure to China and changes in the supply chains have helped cushion the blow of the U.S.-china trade dispute.

FILE PHOTO: The logo of the AMERICAN networking giant Cisco Systems is seen at their headquarters in Issy-les-Moulineaux, near Paris, France, April 3, 2018. REUTERS/Philippe Wojazer/File Photo

The United States raised tariffs on $200 billion of Chinese imports to 25% from the previous week, in which China’s increase of excise duties on $60 billion of AMERICAN goods in retaliation on Monday.

Analysts are concerned about the impact of the revolution on Cisco’s traditional business of selling switches and routers, because some are made in China.

However, the company said it had been working for six months to change the supply chain and that they expect a minimal impact at this point.

“We still have the production done in China. But we have greatly, greatly reduced our position in working with our supply chain and our suppliers,” Chief Financial Officer Kelly Kramer said on a post-earnings conference call.

Shares of the Dow component rose by 2.5% to $53.75 in the extended trade.

Chief Financial Officer Kelly Kramer said only about 3% of Cisco’s total revenues come from China, shielding slowdown of the economic growth that there is caused a slower sales for tech companies like Apple Inc . She told Reuters that certain Cisco products still face tariffs even after the company moved production lines for some U.S.-bound products and to find alternative sources for some parts.

“We still have products that are tariffed, but we are reducing the size of the cake,” she said. “We can take some pricing actions to reflect the costs.”

The company has been betting on the newer business such as cyber security and software as it looks at the effect, if any, of the delay of the sale of routers and switches.

The turnover in the company safety matters, that the firewall offers protection and violation detection systems, increased by 21% to $707 million, beating the estimates of $670.4 million.

The revenue in the software business increased by 9% to $1.43 billion, but fell short of estimates of $1.52 billion.

Sales in the infrastructure platform business, including switches and routers, increased by 5% to $7.55 billion. Analysts had expected revenue of $ 7.47 billion, according to the IBES data of Refinitiv. That company expects to get a boost of 5G communication networks, but Cisco executives said they do not expect an impact until 2020.

The company forecast fourth-quarter revenue growth of 4.5% to 6.5%, which means $13.33 billion in the middle, and adjusted earnings of 80 cents to 82 cents per share. Analysts were expecting a profit of 81 cents per share and revenue of $ 13.29 billion.

“The results continue to be consistent. They were pretty much in that line it is a relief to investors, considering all the negative macro news,” Elazar Advisors analyst Chaim Siegel said.

The net profit rose to $3.04 billion, or 69 cents per share, in the third quarter that ended on 27 April from € 2.69 billion, or 56 cents per share, a year earlier.

On an adjusted basis, the company earned 78 cents per share. Analysts had expected Cisco to earn 77 cents per share.

The total revenue increased 4% to $ 12.96 billion, beating the estimates of $12.89 billion.

Reporting by Akanksha Rana, Bengaluru and Stephen Nellis in San Francisco; Editing by Anil D’silva and Richard Chang

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