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Cisco Gives Strong Sales Forecast In Sign Companies Are Still Spending on IT

(Bloomberg) -- Cisco Systems Inc., the largest maker of machines that run computer networks and the internet, said orders declined 23% in the past quarter, sending shares down despite a strong sales forecast that topped analysts’ projections.

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Chief Executive Officer Chuck Robbins said demand remains steady and an improved supply chain is giving customers greater confidence to purchase equipment to cope with an ever increasing flow of data. Order cancellations also are well below historic levels, he said.

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Robbins said orders declined from February through April because an earlier increase in product shipments meant customers needed to “absorb these shipments.” A difficult economic environment also contributed to some caution among clients, he said Wednesday during a conference call after the results were released.

Cisco shares were down 3.5% during premarket trading in New York on Thursday. The stock closed at $47.63 on Wednesday and is little changed this year.

In the current period ending in July, sales will rise 14% to 16%, the company said in a statement. That compares with analysts’ average predictions of a 14% increase, according to data compiled by Bloomberg. Excluding certain items, profit will be $1.05 to $1.07 a share, compared with an average estimate of $1.03 a share.

Robbins has tried to recast his company as a provider of networking services and software, which are paid for on a recurring basis, and decrease the company’s reliance on onetime sales of expensive machines. While that’s an attempt to break Cisco’s traditional dependence one-time purchases of expensive gear, the company still needs to get new equipment into the hands of customers so it can sell them the software and services associated with the newer products.

“The company is making good progress in its business-model transition, as product remaining performance obligations grew 9% in 3Q, which we view as a better measure of the health of the enterprise,” Woo Jin Ho, an analyst at Bloomberg Intelligence, said in a note after the results.

In Cisco’s fiscal third quarter ended April 29, revenue rose 14% to $14.6 billion. Profit, minus some items, was $1 a share. That compares with estimates of 97 cents a share on $14.4 billion of revenue.

(Updates with shares in fourth paragraph.)

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