You almost have to feel sorry for Cisco Systems CEO John Chambers. Announcing Cisco (News - Alert) 4Q earnings on another day of intense global stock market volatility after two weeks of relentless doom and gloom was bad enough. However, to do so in the toxic environment of recent withering criticism over Cisco’s performance, and the world looking to these earnings as a bell weather of future global economic vitality, he seemed set up to be a possible victim of a perfect storm. However, in the face of very strong headwinds, Cisco:

• Delivered results that beat Street estimates
• Despite guidance heavily loaded with caveats, also said it expected to see continued, albeit not exactly robust, growth in its business

Whew!

The tale of the tape — how they did

The press release that accompanied the call tells the story:

• Q4 Net Sales: $11.2 billion (from $10.8 billion a year-ago, beating estimates)
• Q4 Net Income: $1.2 billion GAAP; $2.2 billion non-GAAP
• Q4 Earnings per Share: $0.22 GAAP; $0.40 non-GAAP (compared to 43 cents last year , but also beat consensus estimates)
• FY 2011 Net Sales: $43.2 billion
• FY 2011 Net Income: $6.5 billion GAAP; $9.0 billion non-GAAP
• FY 2011 Earnings per Share: $1.17 GAAP; $1.62 non-GAAP

While growth across all products and regions was outlined, and the impact of efforts to simplify the company’s focus, reduce its cost structure and optimize its portfolio were all documented, it was Mr. Chambers saying that he was looking for revenue growth of 1 percent to 4 percent in Q1 that seemed to fuel a 10 percent bump in the stock in after hours trading as he was speaking. With Wall Street thinking that revenues would be flat in the next quarter, which is always seasonally slow, this was news investors could use.

As CEO Chamber stated, “We've made significant progress on our comprehensive action plan to position ourselves for our next stage of growth and profitability, while delivering solid financial results in Q4…As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company, that is laser-focused on helping our customers use intelligent networks to transform their businesses."

Other highlights of the analyst call included:

• Cash and cash equivalents and investments were $44.6 billion at the end of fiscal 2011, compared with $43.4 billion at the end of the third quarter of fiscal 2011, and compared with $39.9 billion at the end of fiscal 2010.
• Book-to-bill (order vs. shipments) is above one and hence in good shape
• In the five key areas of company focus results for the quarter were:

- Core networking (50% of revenues) – switching up 6% year-over-year highest number of ports shipped in history (36 million switch ports), routing up 17%

- Collaboration – grew revenues and orders 11% year over year

- Data centers - data center/cloud momentum strong, UCS year over year growth of 129% (added 2,000 new customers - total 7,400 customers). 

- Video – On a full year basis, video revenue was $4.9 billion - up 29% year over year.

- Architectures for business transformation – is why customers are looking to Cisco.

• On geographical distribution of results there was growth across the board: European orders grew 9%, emerging markets 12% year over year, and even U.S. grew 9% despite significant government spending cutbacks that are expected to continue.

In watching the market and all of the blogs as the results came out, there was a communal sigh of relief. As the chief evangelist of the future and value of networking, Cisco, and Chambers in particular had two important missions on this day:

1.  Establish the soundness of the company today — show it was meeting expectations set in its previous quarter about rebalancing to meet market realities and is investing in creating sustainable competitive advantage. (Note: they claim they tend to see and react 2-4 quarters before competitors and are aggressively innovating).

2.  Calm fears about the company, and the technology sector in general, being possible catalysts for further economic malaise.

He hit on all cylinders on both.

Point No. 2 cannot be under-estimated. The world needed Cisco to say everything is OK now, and that the future, while challenging, still looks good. Ultimately, the major currency of the information age is the value created by networks, and that currency remains sound. 

On a day after weeks of pessimism generated from other networking providers downgrading their guidance, and concerns about the future of several former high-fliers and household names (Motorola (News - Alert) and RIM are two that come to mind but the list is long and scary), this was a much needed dose of good news. It was also a strong proof-point of the reality that the underlying technology business is a good place to invest. It is also, despite the occasional and gut-wrenching “right-sizing” in reaction to internal and challenges, which may or may not be in a company’s control, a good place to work.

Thank you, Cisco Systems (News - Alert). Thank you, John Chambers.

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