The third quarter revenue report of Cisco Systems, Inc. (NASDAQ:CSCO) has been released recently. The company posted earnings worth $0.42 per share, down from $0.46 a year earlier, and a bit shallower than expected revenue, with a 5.5% percent drop to $11.5 billion, due to very sluggish sales in emerging markets, as a result of it concentrating on recovering demand in the United States and Europe..

Cisco Systems, Inc. (NASDAQ:CSCO)

The company’s gross margin of 62.7 % in its fiscal third quarter was above its guidance level of 61% to 62%, and much higher than its 53.3% in the previous fiscal quarter. A reason might be that it had to compete in its primary server business with a software defined network (SDN), which offers software that are compatible with cheap hardware. But the release of its Nexus 9000 switches, which adapt to flows in workloads that are created by cloud computing and big data, has given Cisco Systems, Inc. (NASDAQ:CSCO) a necessary positive edge in the competition, according to the earnings call transcript.

US product orders rose 7% from last year, with commercial and enterprise orders rising above 10%. Northern Europe reported a 4% increase from last year, as was the case with many successive years. Cisco Systems, Inc. (NASDAQ:CSCO)’s main concerns would be with emerging economies, where it faces plenty of competition. Brazil recorded a 7% decrease, while China was down by 27% and Russia down by 28%. But it is worthwhile noting that Nexus 2000 has increased its customer base from 20 last quarter to 175 now.

CEO of Cisco, John Chambers during the earnings call expressed hope that the lead that they are having with application centric solutions can help overcome the problems that SDN poses to it. He also said that Cisco Systems, Inc. (NASDAQ:CSCO)’s book-to-build ratio, i.e. the ratio of orders received to units shipped and billed was well above one, and so there was no problem.

“For Q4 we expect revenue to decline in the range of minus 3 to minus 1, which would represent quarter-over-quarter growth of 4% to 6% that is Q3 to Q4,” Mr. Chambers also said.

Analysts expect Cisco Systems, Inc. (NASDAQ:CSCO) to report EPS of close to $2.00 for the current year, on revenues worth around $46.4 billion. The stock of Cisco gained almost 7% on Thursday, while since the beginning of the year, it advanced by close to 9%.