Cisco’s Earnings Up 23% as Sales Surge

Cisco Systems Inc. said Tuesday that its fiscal third-quarter profit rose 23% on the company’s biggest jump in sales in three years, easing investor concerns that demand for the firm’s computer-networking gear might be slipping.

The San Jose-based company earned $1.2 billion, or 17 cents a share, compared with $987 million, or 14 cents, a year earlier. Revenue rose 22% to $5.6 billion, powered by Cisco’s core products and its more recent technologies.

Chief Executive John Chambers said the biggest gains were in sales to large business customers, boosting his optimism about the economy. He said Cisco planned to hire 1,000 employees in the rest of the calendar year, mostly in the U.S.

“CEOs are becoming more optimistic about the economic direction and their own companies,” Chambers said. In turn, he said, “I continue to be more optimistic than I was going into the last quarter.”

The company raised its projections for fiscal fourth-quarter sales to between 23% and 25% more than the year-earlier quarter’s $4.78 billion.

Cisco shares rose 63 cents to $22.25 in regular Nasdaq trading before the earnings announcement, then dropped to $21.78 after hours.

Analysts said the strong showing by Cisco -- aided by a quarter with one more week than the same period last year -- indicated an increasing appetite at big companies for information technology equipment.

“There is a general level of optimism about spending increasing in the second half of this year,” Oppenheimer analyst William Becklean wrote in a report to investors last week.

Chambers said the quarter, which ended May 1, was “a very, very solid quarter, especially considering the traditional weak seasonality.” Gross profit margins increased to 68.8% from 68.5%, and Europe and Japan posted strong increases in orders. In Europe, bookings grew by more than 10%, while Japanese orders were 20% above the level in the second quarter.

Cisco continued to improve on the home networking business it acquired last year, as revenue from Linksys increased 5% from the second quarter to $174 million. Cisco reported that it had sold 3 million Internet telephones, with 1 million sold in the previous eight months. By contrast, it took the company 30 months to sell its first million and 13 months to sell the second million.

As a whole, sales of Cisco’s six “advanced technologies” lines -- home networking equipment, phones, security gear, optical networking, storage networking and wireless -- grew 80% from the year-earlier quarter.

“They showed some continued growth in the voice side, which is new business to them, and the security side as well,” said Meta Group analyst David Willis. “They did a pretty good job in the quarter.”

Chambers said the company would be “increasingly active” in investing in and buying companies with complementary technology, and he pointed to voice, security and video as areas of special interest.

“It’s still fundamentally a switching and routing company,” Willis said.

“They have to figure out how to get into some new businesses.”