Cisco Falls on Margin Issues (CSCO)

Shares of Cisco Systems Inc.

are falling in the after-hours, currently off 4.41%, trading at $23.41. The company reported Q1 earnings after the bell today of $0.42 per share on revenues of $10.75 billion. While both of these metrics beat the Street's expectations ($0.40 per share on revenues of $10.74 billion), it was the fact that CSCO reported a 2.5% decrease in gross margin (62.8%, from 65.3%) that has investors spooked. "Cisco delivered solid financial results, during a challenging economic environment. While we have seen capital spending moderate in some areas of our business, our execution in the areas we can control and influence speak to the success and relevance of the company's strategy," said John Chambers, chairman and CEO, Cisco. He added, "Our position in the market, including continued product innovation, market share momentum and operational excellence, positions us for growth and flexibility well into the future as we strengthen our role as a trusted business partner to our customers." While Mr. Chambers did not address to margin miss in the press release, it is widely expected that he will on the company's conference call. Investors will have to weigh the possibility of further margin cuts in order for Cisco to continue its amazing revenue growth. In should be noted that sales grew 21% for the company's product segment, which makes up the bulk of Cisco's revenue, while services climbed 13%.