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Cisco Struggles For Growth In Q3

Cisco Systems stock perked up in the wake of fiscal third quarter results that beat analyst expectations, but the tech giant is still struggling to grow overall, and particularly in its service provider segment.

On the SP front, it was a mix of good news/bad news, as order declines were down 5% year-over-year, an improvement from the 12% decline posted in Cisco’s fiscal second quarter.

The story was not as good on the service provider video segment, which pulled in $961 million, down 26% year-over-year. Cisco said those results were impacted by tough sledding in emerging markets.

“We are seeing some signs of stabilization in the [service provider] business, but believe it will take multiple quarters to return to growth. We will continue to make changes we need to, to lead in the service provider market,” Cisco CEO John Chambers said on Wednesday’s earnings call.

Speaking of leadership, Cisco is about to insert a new person to head up its video service provider business. The company on Monday confirmed the hiring of former SeaChange International and Cablevision Systems exec Yvette Kanouff, who will helm Cisco’s Service Provider Video  Software and Solutions organization, the unit that runs Videoscape, the company’s multiscreen video platform.

The ongoing decline in this part of Cisco’s business “still looks like share loss in CPE [consumer premises equipment] as CSCO’s results and outlook stand in contrast to a variety of competotors’ outlooks and stable to rising SP capex,” Brian Coyne, analyst with National Alliance Capital Markets, wrote in a research note issued Thursday.

He added that Cisco’s results come in the face strong momentum at two set-top rivals -- Arris (which bought Motorola Home last year) and Pace –  and is indiciative of Cisco’s “unwillingness to compete for lower-margin business.”  And with Cisco indicting that a turnaround is at least several quarters away, it suggests that the company “has ceded turf in set-tops and cable routing equipment that it is unlikely to win back soon, if ever.”

A bright spot for Cisco was enterprise WiFi, which saw orders rise more than 10% year-on-year.

Cisco posted third quarter earnings of 51 cents per share on sales of $11.55 billion, beating Wall Street expectations of 48 cents on $11.36 billion.

But growth remains elusive. Revenues were down 5.5% year-over-year, while net income dropped 3.2%, to $2.6 billion.

Chambers said he was pleased with Cisco’s progress in the quarter, but said the company’s “clear goal” is to return to growth. “Next quarter's set up pretty well, but we got some real heavy lifting to do and I'm sure a couple of bumps along the way especially in emerging markets,” he said.

Looking ahead, Cisco expects fourth quarter profits to be in the range of 51 cents to 53 cents per share, in-line or slightly ahead of analysts' expectations of 51 cents.