Wall Street Beat: Vendors stress caution on financials

Forecasts from Cisco, SGI, CA fall short of expectations

A range of tech vendors including Cisco Systems, Silicon Graphics International, BMC Software and CA Technologies this week reported quarterly earnings that had some solid numbers, but a cautious outlook for the rest of the year is spooking market watchers.

Shares of computer companies are still up for the year, and trading in IT companies ticked up Friday morning. As of Thursday's market close, computer companies on the Nasdaq were up 15 percent for the year. On Friday, Nasdaq computer companies were up by .79 percent in the morning session.

However, in recent weeks, those same stocks had been up by 22 percent for the year. Despite some solid sales reports during the past earnings season, it's clear that market watchers are still nervous about the future, with investors bailing on companies that give out any signs of weakness for the quarters ahead.

Cisco's broad portfolio of enterprise products and global scope makes it one of the big tech bellwethers. Though the company turned in solid sales and earnings growth, CEO John Chambers noted that customers are taking a wait-and-see approach to the economy.

"The enterprise is one that had changed in terms of consumer IT confidence, in terms of customer IT confidence on spending versus the last quarter, and that's got a little bit tougher," Chambers said on Cisco's earnings conference call Wednesday. "I think right now I'd classify it as uncertainty and looking to see more certainty on the global economy and in Europe, and secondly, more certainty in terms of government policies that can have major impacts on their business."

While Chambers was careful to reiterate several times on the call that he believed Cisco is well positioned to take advantage of enterprises' move to cloud computing, he kept coming back to the theme of overall uncertainty about the economy and how that might affect tech spending trends.

"We sure don't like the trend in the enterprise IT spending," Chambers said.

Cisco said that for the quarter ending April 28 net sales were US$11.6 billion, up 6.6 percent from the year-earlier period. Net income was $2.2 billion, up from $1.81 billion. The results edged out expectations of analysts.

However, Cisco's cautious outlook disappointed investors. Company officials forecast revenue of about $11.4 billion to almost $11.8 billion, lagging behind analyst estimates of $11.99 billion. Cisco shares declined to close Thursday at $16.81, down by $1.95, though they edged upward toward the end of the week.

Though much smaller than Cisco, the story for SGI was similar. Shares of the company fell by about 25 percent Thursday, after the hardware and services provider's Wednesday announcement that it would cut its sales and profit forecasts. Though the company reported solid sales growth for the quarter, it said some customers are delaying purchases, partly because they are waiting for the launch of new products. SGI also said profit margins are being squeezed as lower-cost hardware platforms sell faster than the higher-margin machines.

SGI reported revenue of $199.4 million, up 39 percent from the third quarter of 2011. The results were better than expected, and SGI said it's industry-strength hardware platforms are well suited for the big data needs of its customers.

But the company's outlook feel short of expectations. The company said it expects to generate $750 million to $770 million in revenue for the fiscal year. Analysts on average were expecting $772.9 million for fiscal 2012.

On the software side, the story continued for CA: some good quarterly numbers, but a soft outlook. CA, spurred on by strong growth in North America as demand grows for cloud-based computing and virtualization products, on Thursday reported a 5 percent year-on-year increase in revenue to $1.19 billion, in line with analysts' expectations.

Net income jumped to $211 million from $188 million. Excluding one-time charges, CA 's EPS (earnings per share) was $0.56, edging out analyst estimates of $0.52. The company forecast fiscal 2013 revenue of $4.85 billion to $4.95 billion, but analysts expected company sales to be $5.01 billion. Shares slumped by $0.26, trading at $26.02 in early Friday trading.

BMC Software, reporting Wednesday, said quarterly sales were $564.7 million, up slightly from the year-earlier figure of $562.2 million. The company beat analyst forecasts for $561.4 million. Profit declined to $71 million from $123 million a year earlier. EPS excluding one-time items was $0.74, below analyst forecasts of $0.80 per share.

However, BMC had a more upbeat outlook than other major players this week and was rewarded with a boost to its share price.

BMC said for the full fiscal year 2013, revenue growth would be in the mid- to high-single digits, with EPS of $3.49 to $3.59. The higher end of the estimate exceed analyst forecasts of $3.51. BMC shares closed at $40.28 Thursday, up by $0.57, and ticked up again Friday morning.

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Marc Ferranti

IDG News Service
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