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Cisco : Posts Higher Profit, Says Tariffs Had Little Impact

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05/16/2019 | 06:47 am


By Maria Armental




Cisco Systems Inc.'s results for the most recent quarter beat Wall Street targets, and the networking giant said it sees little effect from higher tariffs in a U.S.-China trade clash.



Cisco, considered a proxy for high-tech hardware demand, is being closely watched for how it has navigated the escalating trade dispute between the two countries.



Chief Executive Chuck Robbins said the company has largely offset financial damage from tariffs by raising prices and moving contract manufacturing away from China.



Cisco outsources all of its manufacturing, and while it still has some in China, it has reduced its exposure by working with its suppliers, Chief Financial Officer Kelly Kramer said Wednesday in a conference call with analysts.



Mr. Robbins said fourth-quarter guidance accounts for the higher tariffs that went into effect last week.



"We see very minimal impact at this point," Mr. Robbins said. "All that we needed to do is now behind us."



The U.S. increased tariffs on $200 billion of Chinese goods to 25% last week, and China plans to increase levies on $60 billion in U.S. imports starting on June 1.



Cisco said its profit in the quarter ended April 27 rose 13% to $3.04 billion, or 69 cents a share. On an adjusted basis, profit rose to 78 cents a share from 66 cents a share a year earlier.



The company, based in San Jose, Calif., has been shifting its business to make more money from software and subscriptions, which provide a more predictable revenue stream. It reported that revenue rose 4% in the third quarter to $12.96 billion.



Cisco had projected an adjusted profit of 76 cents to 78 cents a share with revenue increasing 4% to 6% from a year earlier, while analysts surveyed by FactSet expected an adjusted profit of 77 cents a share on $12.89 billion in revenue.



Gross profit margin improved to 63.1% from 62.3% a year earlier.



At Cisco's core business selling switches, routers and other networking equipment to businesses, revenue rose 5% to $7.55 billion, ahead of analysts' projected $7.46 billion.



Revenue in its security segment, a fast-growing but small piece of the company, increased a better-than-expected 21% to $707 million. Meanwhile, revenue for the applications business, which includes videoconferencing and other products, rose 9% to $1.43 billion, compared with analysts' projected $1.5 billion.



This quarter, Cisco projects adjusted profit of 80 cents to 82 cents a share with revenue increasing 4.5% to 6.5%. That compares with analysts' projected 81 cents a share and revenue rising about 3.5% to $13.29 billion.



Shares, which have been trading at 2000 levels, rose 2.7% to $53.85 in after-hours trading. In 2000, during the dot-com boom, Cisco was briefly the world's most valuable company, with a market capitalization of more than $500 billion. It is valued at about $231 billion, based on Wednesday's $52.44 closing price.



Write to Maria Armental at maria.armental@wsj.com





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