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Newer businesses drive Cisco's earnings beat; shares rise

FILE PHOTO - The logo of U.S. networks giant Cisco Systems is seen at their headquarters in Issy-les-Moulineaux, near Paris, France, April 3, 2018. REUTERS/Philippe Wojazer

By Arjun Panchadar

(Reuters) - Cisco Systems Inc on Wednesday reported better-than-expected quarterly earnings and forecast third-quarter revenue above analysts' estimates, as it benefited from strong growth in its newer applications and security businesses.

Shares of the Dow component rose about 4 percent to $49.30 in extended trading after the network gear maker also boosted its share buyback program by $15 billion (12 billion pounds) and raised its quarterly dividend.

Cisco pivoted to software and cyber security to make up for slowing demand for its routers and switches as companies increasingly shift to cloud services offered by Amazon.com Inc, Microsoft Corp and Alphabet Inc instead of building their own networks.

"Strong growth in areas like security and software-defined networking are indicative of Cisco staying a leader in nascent technologies and possibly turning into more spend per customer or opening up new opportunities," Morningstar analyst Mark Cash said.

Chief Executive Officer Chuck Robbins, who took the helm in July 2015, has made acquisitions a central part of his efforts to add muscle to the hardware giant's newer growth areas such as the cloud, internet of things and cyber security.

Acquisitions contributed 140 basis points to its revenue, Chief Financial Officer Kelly Kramer said on a post-earnings call.

The company said it expects third-quarter revenue growth of 4 percent to 6 percent, implying a range of between $12.96 billion and $13.21 billion. Analysts were expecting $12.84 billion.


Robbins also brushed aside worries about the impact of the U.S-China trade war on the company's operations by saying demand was steady through the quarter, while adding that the impact from the U.S. government shutdown was also minimal.

"It certainly is one of the more complex macro geopolitical environments that I think we've seen in quite a while with all the different moving parts," Robbins said.

"But to be honest, from the first day of the quarter to the last day of the quarter, we saw zero difference."

For the latest quarter, revenue from its application software businesses rose 24 percent to $1.47 billion.

Security business, which sells firewall protection and breach detection systems, also posted an 18 percent jump in sales to $658 million.

Sales in its infrastructure platform business, which includes the company's traditional business of switches and routers, rose 6 percent to $7.13 billion.

Total revenue rose 4.7 percent to $12.45 billion. Analysts on average had expected revenue of $12.41 billion.

On an adjusted basis, the company earned 73 cents per share, beating estimates of 72 cents per share.


(Reporting by Arjun Panchadar in Bengaluru; Editing by Anil D'Silva)