Cloudy Skies for Cisco and EDS, but BMC Better

Cisco Systems Inc. posted good second quarter financial results but was cautious on the near-term outlook. Meanwhile, Electronic Data System Corp. (EDS) announced mixed fourth quarter and full year 2007 financial results and BMC Software Inc delivered better than expected results.

Focal Points:

• Cisco reported total revenues for the second quarter increased 16.5 percent year-over-year to $9.8 billion. Net income for the quarter on a GAAP basis was $2.1 billion or $0.33 per diluted share. This was 6.5 percent higher than comparable net income of $1.9 billion, or 31 cents per share, for the same period last year. CEO John Chambers expects Cisco to see long-term revenue growth in the 12 to 17 percent range but his guidance for the next quarter is cautious. Cisco should be able to meet its long-term projections, as customers worldwide are positive on Cisco's product transitions and vision, according to officials. However, January's growth of 10 percent was less than expected and the economic business and consumer confidence changes make forecasting next quarter's business momentum extremely challenging, executives warned.
• EDS reported its revenue and profit for the fourth quarter and fiscal year 2007. Total revenues for the quarter increased two percent year-over-year to $5.85 billion. Net income for the quarter on a GAAP basis was $189 million or $0.36 per diluted share. This is compared to a net income of $217 million for the same period the previous year. Fourth quarter revenue decreased three percent on an organic basis, which excludes the impact of currency fluctuations, acquisitions and divestitures, the company stated. Meanwhile, total revenues for EDS's fiscal 2007 rose 3.7 percent to $22.1 billion compared to 2006's revenues of $21.3 billion. Net income on a GAAP basis was $716 million, or $1.35 per diluted share. In contrast, in 2006 EDS had a net GAAP income of $470 million or $0.89 per diluted share.
• BMC posted better than expected third quarter results. Revenues in the quarter grew 11 percent to $459.0 million from $412.9 million. This was the first time in more than three years that the company had double-digit quarterly growth, the company said. Net earnings for the quarter on a GAAP basis were $89 million, or $0.45 per diluted share, versus $64 million and $0.30 per diluted share in the year-ago quarter. Executives at the company project a strong fourth quarter and a total annual revenue growth rate for fiscal 2008 to be in the high single digits.

Experton Group believes the technology sector as a whole will continue to show mixed results during the quarter and first half of the year. However, companies that have been able to demonstrate leadership and good cost controls will outperform the rest. Because of Cisco's geographic and product diversity and its ability to be a trend leader, the company should be able to achieve its targets regardless of the economic bumps ahead. IT executives should be working with Cisco to understand their vision and view of technology shifts and determine if and how these elements should be incorporated into the enterprise architecture. EDS has strengthened its financial position but Experton Group sees it continuing to struggle under competitive pressures and losing ground to other outsourcing companies. CA, Inc., BMC, and Symantec Corp. posted good gains due to top line or bottom line growth or both. While the software sector shows strength, IT executives should still be cautious in its software negotiations, as mergers and acquisitions can easily change the landscape and implication of the deal.