Corporate Earnings Mixed, Outlook Better?

 

Cisco Systems Inc. reported a drop in earnings but expressed a positive outlook. However, Silicon Graphics International (the old Rackable Systems Inc.) and Sun Microsystems Inc.  released disappointing financial results for the quarter. On the positive side, Ariba Inc. and 3PAR Inc. reported better than expected earnings results.

Focal Points:

• Cisco stated its first quarter fiscal 2010 results. Net revenues for the quarter were $9.0 billion, a drop of 12.7 percent from the same period in the previous year when it had revenues of $10.3 billion. On a GAAP basis, net income for the quarter fell 18.8 percent from last year's quarter of $2.2 billion to $1.8 billion. CEO John Chambers told investors that he felt that the company's fourth quarter 2009, which ended in July, appears in hindsight to have been the "tipping point" of the recession. He additionally noted that there is a "solid indication of economic recovery in locations across the world," including strengthening in the U.S. and other North American markets. Meanwhile, Cisco's potential acquisition of Tandberg ASA may fail to connect. A major owner is balking at the sale price and Cisco is not showing signs of upping the deal.
• Silicon Graphics (SGI), which now consists of Rackable Systems and the acquired assets of the old SGI, posted a sizable jump in revenues over Rackable's revenues for the same period last year. However, while revenues were up, net income was dismal. SGI reported sales of $100.1 million, up 53.8 percent from the prior year's quarter. However, SGI's first quarter 2010 net loss came in at $17.6 million on a GAAP basis, as compared to a loss of $6 million for the old Rackable in first quarter of 2009. Similarly, Sun sales crumbled and its first quarter revenues dropped 25 percent from the same period in the previous year to $2.24 billion from $2.99 billion. Even worse, product revenues were down a precipitous 32 percent year-over-year to $1.19 billion from $1.76 billion. On a GAAP basis, Sun posted a net loss for the quarter of $120 million, which was a vast improvement over the year-ago quarter's loss of $1.68 billion.
• Ariba, a provider of procurement software and services, reported its fourth quarter fiscal 2009 results. Net revenues for the quarter were $84.3 million, down 1.4 percent from the previous year's quarter. On a GAAP basis, net income for the quarter was positive and came in at $5.6 million, as compared to a loss of $6.1 million in the year-ago period. The company announced stronger than expected subscription software revenue, which was up 26 percent to $41.1 million. Meanwhile, 3PAR, a utility storage provider, revealed second quarter 2010 revenues of $46.1 million, up two percent from second quarter of 2009. GAAP net loss for the quarter was $0.76 million, whereas in the second quarter of 2009 the company incurred a loss of $1.2 million.

Experton Group believes Cisco's bellwether results and outlook points to strengthening business activity but not to an overall global wave of economic growth. The resurgent global economic activities are being driven by governmental stimuli and not increased private enterprise revenues and consumer spending. Furthermore, Sun's sinking results do not bode well and, if continued apace, could severely impact Oracle Corp.'s strategy for the company post-merger. Enterprises need to remain cautious about sustained revenues and profit growth. IT executives should refine their capital and operational expenditure plans and strategies for the next three years to reflect a continued constrained environment and seek new approaches to do more with less.