Cisco Beats Forecasts but Shares Still Get Hammered

Cisco Systems Inc. beat Wall Street profit forecasts for the 13th straight quarter Monday, an anxiously awaited report that showed a 66% jump in sales by the No. 1 producer of equipment used to direct traffic on the Internet.

But investors, rattled by a volatile six-month stock market downturn, reacted negatively to the report, worried that even a reliable performer like Cisco will soon be hit by a sluggish turn in the economy.

Stock in Cisco, widely seen as a barometer for the technology industry and the Internet economy, fell $1.63 on Nasdaq to close at $55.13 and dropped further to $53.81 in extended trading after the earnings were released.

Cisco said pro forma net income rose 67% to $1.36 billion, or 18 cents a share, in its fiscal first quarter ended Oct. 28, from $814 million, or 11 cents, in the year-ago quarter.

Analysts surveyed by First Call/Thomson Financial had projected operating profit of 17 cents.

Sales grew to $6.52 billion, spurred by strong demand for virtually all its products in the markets where Cisco competes. The sales figure, which has been been widely watched on Wall Street for signs of slowing, topped expectations of $6.3 billion to $6.5 billion.

Chief Executive John Chambers told analysts that bookings for the company’s products worldwide surged 55% in its fiscal first quarter from a year ago and were up in “double digits” from the fourth quarter.

Chambers also said the company had achieved an important balance across its product lines and worldwide markets, with U.S. sales accounting for 52% of revenue.

“We believe we are positioned to break away from both the small and large competitors in every category,” Chambers said in a conference call.

He acknowledged, however, that Cisco’s growth could be slowed by an economic downturn. The company also said it had short-term concerns about a spending slowdown by Internet service providers, and that some of its suppliers could not keep pace with Cisco’s demands.

“We have a healthy paranoia that makes Andy Grove and the ‘Only the Paranoid Survive’ attitude look relaxed,” Chambers said, referring to the 1996 book by the chairman of Intel Corp. Chambers has repeatedly used “healthy paranoia” to describe his outlook.

At a Glance

Other earnings, excluding one-time gains or charges unless noted, include:

* May Department Stores Co.’s third-quarter profit dropped 38% to $85 million, or 27 cents a share, as it cut prices to clear out spring and summer apparel. Revenue rose 5% to $3.33 billion.

* VoiceStream Wireless Corp. said its third-quarter loss widened to $661 million, or $3.02 a share, from $93 million, or 97 cents, a year ago, as high costs to build its network offset strong subscriber growth. Sales rose more than fourfold to $562 million from $135 million.

* Waste Management Inc. said third-quarter operating earnings fell 26% to $207.6 million, or 33 cents a share, matching analyst expectations, as revenue declined 0.7% to $3.12 billion.

*

Bloomberg News was used in compiling this report.

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Cisco Slump

Cisco Systems shares weren’t helped by its report of better-than-expected sales and earnings. Cisco fell to $53.81 in after-hours trading on the news. The stock is down about a third from its peak of $82 in March.

Cisco monthly closes and latest on Nasdaq

Monday: $55.13, down $1.63

Source: Bloomberg News