Cisco Systems (Nasdaq:CSCO) reported fiscal 2012 second quarter results that were very encouraging for the company and the tech industry. Net sales during the quarter grew 11% year-over year to $11.5 billion and earnings per share of 40 cents grew by 48% year-over-year, respectively. Analysts were expecting revenues of $11.2 billion along with EPS of 43 cents. The revenue surprise is an encouraging sign that businesses are spending more.

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Solid Execution
Cisco is in the midst of a three-year plan that in the works of Chairman and CEO John Chambers claims will "drive earnings faster than revenue." Cisco has been aggressively improving operational efficiency and the company noted that it had managed to meet its goal of reducing expenses by $1 billion a quarter earlier than anticipated. Double-digit sales growth along with the expense reduction has achieved management goal of driving earnings growth higher. Moreover, Cisco pulled in operating cash flow of $3.1 billion during the quarter, compared with $2.3 billion a quarter earlier. Balance sheet cash grew to $46.7 billion from $44.4 billion last quarter. Cisco's solid execution of reducing expenses will continue to drive earnings growth higher if top line growth slows.

Shareholder Value
On top of generating tons of cash, Cisco retired 26 million shares of common stock at an average price of $17.84 a share. Shares now trade for $20 and Cisco is creating tremendous shareholder value. The company is generating gobs of cash and then using that excess cash to retire shares cheaply. And with each share bought, Cisco reduces its dividend payout further reducing cash outflows.

Over the coming weeks and months, as other cheap, cash-heavy tech giants like Microsoft (Nasdaq:MSFT), Intel (Nasdaq:INTC) and Dell (Nasdaq:DELL) continue to pile on the money, I would expect them to retire back stock. Dell has already bought back a ton of stock. Microsoft and Intel yield 2.6% and 3.1%, respectively, so both of those companies would benefit doubly from retiring stock. The end result is good news for shareholders.

The Bottom Line
Cisco's results will likely bode very well for the tech industry and the economy going forward. If other big tech names follow suit with similar encouraging reports, markets could view these results as a positive economic indicator and that could send markets higher.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.



Tickers in this Article: CSCO, INTC, MSFT, DELL

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