Cisco shares take big hit on Q1 earnings report

Despite 8% gain in net income, gross margins shrink, revenue only meets forecasts

Shares of Cisco Systems (NASDAQ: CSCO) plummeted more than 13 percent in after-hours trading Wednesday after the networking equipment giant reported fiscal first-quarter earnings that barely topped net income estimates and only met revenue forecasts.

Cisco closed regular trading Wednesday at 24.49, before plunging to as low as 21.15 two hours after the final bell, a drop of 13.6 percent. The company reported Q1 net profit of $1.93 billion, or 34 cents a share, up 7.8 percent from last year's first-quarter earnings of $1.79 billion, or 30 cents a share. Cisco's adjusted income for the first quarter was 42 cents a share, while revenue was $10.75 billion, up 19.2 percent from $9.02 billion last year. Consensus forecasts called for earnings of 40 cents per share on revenue of $10.75 billion. But it was the San Jose, Calif.-based company's shrinking gross margin -- it went to 62.8% from 65.3% last year -- that might have bothered after-hours traders. In a statement accompanying the earnings release, Chairman and CEO John Chambers said, "Cisco delivered solid financial results, during a challenging economic environment. While we have seen capital spending moderate in some areas of our business, our execution in the areas we can control and influence speak to the success and relevance of the company's strategy."

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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