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Cisco’s Upbeat Forecast Signals Strong Corporate Spending



(Bloomberg) – Cisco Systems Inc. gave a bullish forecast for sales and profits for the current period, a sign that corporations continue to spend on their computer networks despite concerns that a trade dispute between China and the United States will slow down world economic growth.

Sales in the fourth fiscal quarter will increase 4.5% to 6.5% compared to the same period last year, the company based in San Jose, California, said in a statement on Wednesday. That indicates revenues of up to $ 13.5 billion, compared to the analysts' average estimate of $ 13.29 billion. The adjusted profit will be from 80 to 82 cents per share, in line with the projections of 81 cents.

Cisco, whose team constitutes the backbone of the Internet and corporate networks, has grown again by renewing existing products and adding new software and services under a corporate renewal of Executive Director Chuck Robbins. The company's forecast can help defuse concerns that companies are less willing to invest in new hardware amid fears about tariffs in trade between the two largest economies in the world.

Cisco's perspective takes into account the possibility that the United States will track its threat to impose a 25% tariff on a variety of products manufactured in China, Robbins said.

"We are proud of what the teams have achieved in a very complex world, but it will remain a complex world," the CEO said in a telephone interview. The company has experience in moving its manufacturing locations and has done the necessary work to mitigate the impact of a rate hike, he said.

Cisco said that orders are increasing, particularly from customers of the security unit, due to the work done in the last two years to renew their products. That has made the offers better suited to the more complicated network and computing needs of corporations, which use a combination of internal networks and outsourcing, Robbins said.

Cisco shares rose around 3% in extended operations. The stock, which has gained more than 20% this year, increased less than 1% to $ 52.44 at the close of New York.

In the fiscal third quarter, which ended on April 27, net revenues increased to $ 3.04 billion, or 69 cents per share, from $ 2.69 billion, or 56 cents, a year earlier. Revenue rose to $ 13 billion. Excluding certain items, Cisco made a profit of 78 cents per share, compared to the analyst's average estimate of 77 cents, according to data compiled by Bloomberg.

By region, the Americas led the way in the quarter with an increase of 9% in sales over the previous year, excluding a business sold, to $ 7.7 billion. Europe also rose, rising 5%. Revenues from Cisco's security business increased 21% from the previous year to $ 707 million. The hardware grew by 5% and the software expanded by 9%.

Cisco's status as the largest manufacturer of routers, switches and other equipment used to connect computers means that its earnings are seen as a broad indicator of corporate spending plans. The company obtains only a small percentage of China's sales, where it has been largely blocked off the market, and can somehow be a beneficiary of the ongoing trade dispute, which includes attempts by the United States government to Block equipment purchases from one of your suppliers. The main rivals, Huawei Technologies Co. Still, if business spending is hampered by a general economic slowdown caused by commercial uncertainty, Cisco sales could be affected, analysts said.

Under Robbins, Cisco has made a series of acquisitions aimed at incorporating software and services that facilitate the company's dependence on hardware. He is trying to generate more predictable and recurring revenues by offering customers the ability to manage and monitor their networks remotely to make them more efficient and secure.

The Cisco leader has said the transformation will take time, as many of the new offerings require customers to switch to newer hardware that supports advanced features and services.

(Updates with comments from the CEO in the fourth paragraph.)

To contact the reporter in this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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