Third quarter financials: Cisco leads the way with strong net income and revenue

Lesson learned: Firms that are run well, do well financially
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With the third quarter 2012 earnings season coming to an end, FierceEnterpriseCommunications evaluates the performance of select enterprise communications companies.

Biggest winners

Telecom equipment firm Cisco (Nasdaq: CSCO) led the way with a strong quarter, posting an 18 percent year-over-year increase in net income and reaching $2.1 billion for the quarter, one of the few companies tracked by this publication to report an increase in net income.

The high-tech behemoth also posted healthy revenue of $11.9 billion in the most recent quarter, up 5.5 percent from the $11.3 billion reported in the same quarter in the previous year. The company was able to generate $2.5 billion in cash from operations in the latest quarter.

Despite challenges in its core network routing and switching business, which saw a 2 percent decline in sales, Cisco was able to post a 5.5 percent increase in net income primarily through growth in its data center, wireless and video businesses.

"Cisco is at the center of the major market transitions--cloud, mobility, video--and yet we believe the largest market transition lies ahead of us, as the Internet of Everything becomes a reality," said John Chambers, Cisco's chairman and CEO.

Other enterprise communications companies that joined Cisco in posting higher net income for the quarter include 8x8 (Nasdaq: EGHT), Akamai (Nasdaq: AKAM), Logitech (Nasdaq: LOGI) and Extreme Networks.

VoIP provider 8x8 posted a net income of $1.7 million for the most recent quarter, up from a net income of $800,000 for the same quarter last year. The company also reported a 33 percent increase in revenue for the quarter, reaching a record $26.4 million.

Bryan Martin, 8x8's chairman and CEO, attributed the strong results to the "continued adoption of a greater number of 8x8 services by both small and mid-market customers, many of whom have multiple geographic locations and mobile workforces that are no longer served or supported by legacy premise-based or hybrid approaches."

Internet content delivery firm Akamai reported a net income of $48.2 million, a 14 percent jump from a net income of $42 million last year. Revenue increased 23 percent to reach $345 million.

"We continued to capitalize on our investments in cloud computing, web security, mobile services and online video by expanding our product portfolio, while effectively managing the cost and efficiency of our network," said Paul Sagan, president and CEO of Akamai.

Logitech, a maker of computer peripherals, posted a net income of $55 million for the quarter, up substantially from net income of $17 million for the same quarter last year. At the same time, the company reported a 7 percent decline in sales to $548 million.

Guerrino De Luca, Logitech chairman and CEO, blamed the sales decline on a weakened PC market as a result of buyers waiting for the launch of Windows 8. However, the company was able to post strong income by improving gross margins and operating results, he noted.

Extreme Networks, an Ethernet network provider, posted an eight-fold increase in net income, reporting $12.9 million in the most recent quarter compared to $1.6 million in the same quarter last year. The firm reported a slight decline in revenue for the quarter. Oscar Rodriguez, president and CEO of Extreme Networks, attributed the increase in net income despite lower revenue to a cost restructuring taking place at the firm.

Biggest losers

The biggest losers this quarter were Alcatel-Lucent (NYSE: ALU), Polycom (Nasdaq: PLCM), Acme Packet (Nasdaq: APKT), ShoreTel (Nasdaq: SHOR), and FairPoint Communications (Nasdaq: FRP).

Telecom equipment maker Alcatel-Lucent had a staggering net loss of €146 million ($186 million) for the quarter, compared to a net income of €194 million for the same quarter last year.

To curb the losses, the company is implementing a €1.25 billion restructuring program that includes asset sales and 5,500 job cuts. Alcatel-Lucent has seen its stock value drop close to 65 percent over the past year, and the stock is trading near a 23-year low.

FairPoint Communications, a telecom service provider, posted a net loss of $37.3 million for the most recent quarter. The good news is that this was down substantially from a net loss of $279.4 million in the same quarter last year, which the company attributed to a non-cash impairment of intangible assets and goodwill. Paul Sunu, CEO of FairPoint, said the company was seeing "positive momentum" in its business and broadband products, including data and internet services.

Videoconferencing firm Polycom announced a net loss from continuing operations of $15 million, compared with a net income of $20 million in the same quarter last year. The company attributed the loss to stock-based compensation, restructuring costs and other items.

"Demand for our best in class [unified communications and collaboration] solutions was solid in Q3, which allowed us to come in at the high end of our revenue expectations and exceed our earnings expectations," said Andrew Miller, Polycom president and CEO.

Acme Packet, a supplier of session border controllers, posted a net loss of $5.5 million for the quarter, compared to a net income of $7.9 million for the same quarter last year.

VoIP provider ShoreTel posted a net loss of $8 million in the most recent quarter, compared to a net loss of $4.6 million for the same quarter in fiscal year 2012. The firm posted revenue of $75 million in the first quarter of fiscal year 2013, an increase of 39 percent from the same quarter in the last fiscal year.

So the third quarter financial results were a mixed bag. Two companies in the telecom network equipment space, Cisco and Alcatel-Lucent, were at opposite ends of the results spectrum, with Cisco topping the charts and Alcatel-Lucent in the cellar. In the VoIP market, 8x8 performed strongly, while ShoreTel struggled.

Perhaps the main takeaway from this quarter's results is that companies that are run well, regardless of what market segments they compete in, do well financially. Companies that are not run well, on the other hand, do not.

Take a look at our report of select enterprise communications companies in the third quarter of 2012 as well as our reports from the second quarter and first quarter of 2012.