Cisco profit beats on strength in security business

By Salvador Rodriguez

(Reuters) - Cisco Systems Inc (CSCO.O) reported a better-than-expected quarterly profit on Wednesday, driven by gains from its newer businesses such as security, which more than offset declines in its traditional switches and routers business.

This shows the technology leader has begun to turn a corner as it shifts focus from hardware to software and recurring subscriptions, several analysts said.

"Cisco has been shifting its business model towards subscriptions, especially in the faster-growing segments like security," said Tim Green, analyst with the Motley Fool. "That effort may be starting to bear fruit."

The world's largest network gear maker forecast second-quarter adjusted profit of 58 cents to 60 cents per share, largely above analysts' estimate of 58 cents, according to Thomson Reuters I/B/E/S.

Cisco forecast a revenue increase of 1 to 3 percent for its second quarter, which would end a streak of eight quarters of year-to-year decline.

"The forecast is better than feared and speaks to a company that has started to turn the corner," said Daniel Ives at research firm GBH Insights.

The company's shares rose more than 5 percent to $35.95 in after-hours trading.

"Cisco has been shifting its business model toward subscriptions, especially in the faster-growing segments like security," said Tim Green, analyst with the Motley Fool. "That effort may be starting to bear fruit."

Revenue from Cisco's security business, which offers firewall protection and breach detection systems, rose 8 percent to $585 million.

"We've been in a multi-year journey selling software and subscriptions against the threat intelligence and the malware intelligence that we have. And I think that's what's continuing to pay off," Chief Executive Charles Robbins said on a post-earnings call.

Cisco is focussing on high-growth areas such as security, Internet of Things and cloud computing like other legacy technology companies.

"If the new services add revenue next year, they will seem very cheap, and the dividend makes them a great add for a conservative portfolio," said Phil Davis, CEO of PhilStockWorld.com, an investment advisory service.

Recurring revenue from Cisco's subscription businesses accounted for 32 percent of total revenue in the first quarter, up 3 points year-to-year. The company also reported deferred revenue of $18.6 billion, up 10 percent year-to-year, as a result of Cisco's new focus on software and services, Green said.

Net income rose to $2.39 billion, or 48 cents per share, from $2.32 billion, or 46 cents per share, a year earlier.

Excluding items, the company earned 61 cents per share. Revenue fell 1.7 percent to $12.14 billion.

Analysts on average had expected Cisco to report a profit of 60 cents per share on revenue of $12.11 billion.

(Reporting by Salvador Rodriguez in San Francisco and Laharee Chatterjee in Bengaluru; Editing by Shounak Dasgupta and Richard Chang)