Cisco Profit Soars 76% as Sales Beat Expectations

Times Staff Writer

Feeding off the improving economy, Cisco Systems Inc.'s quarterly profit jumped 76% as sales grew by the largest amount in two years.

The biggest maker of computer networking equipment said Wednesday that fiscal first-quarter net income increased to $1.09 billion, or 15 cents a share, from $618 million, or 8 cents, in the same period a year ago. Last year's results were depressed by a loss on investments; the latest results were helped by Cisco's delaying an expected accounting charge of $200 million to $500 million related to its acquisition of Andiamo Systems Inc.

Sales rose well above forecasts, climbing more than 5% from last year's first quarter, and more than 8% from the fourth quarter, to $5.1 billion. That figure, combined with Cisco's positive outlook for the rest of the year, sent the company's stock up more than 5% in after-hours trading to $23.02. It had gained 22 cents to $21.80 on Nasdaq.

The after-hours price was the highest point for Cisco stock since May 2001 -- around the last time that the company reported a $5-billion quarter.

"The results were solid across the board," said analyst Brantley Thompson with Goldman Sachs & Co., which does banking business for Cisco. "Government spending was particularly strong."

Cisco Chief Executive John Chambers said he felt more confident about the economy now than he had going into the quarter, and he said that sentiment was shared by the CEOs of about half of Cisco's customers.

"The recovery appears to be slowly gaining momentum but is still fragile in the minds of our customers," Chambers said in a conference call with analysts and investors. "As our customers' business improves, so will ours."

Cisco's results followed good numbers from other large manufacturers in recent weeks. They also came on the heels of the best quarterly growth in gross domestic product in 19 years. Chambers has said his company's performance should be measured against GDP.

"If you get some more quarters like this on the GDP front, Cisco should be able to keep it going," said analyst Ryan Molloy of SoundView Technology Group.

Cisco executives said revenue in the second quarter should show an additional 10% gain compared with last year as the recovery gains steam.

Some of Cisco's new revenue may come easily, analysts said: As spending loosens up at big companies, they will turn to Cisco to complete long-delayed improvements to their infrastructure.

The trickier part will come when that surge of easy money is over, Molloy said. Then Cisco will have to show real progress in its advanced technology efforts, including sales of wireless and security products.

In the latest quarter, which ended Oct. 25, Cisco said federal government spending accounted for about 20% of its product orders from big customers. Purchases by service providers, including telecommunications customers, increased 20% from the previous year.

Cisco also was helped by its acquisition of consumer-gear maker Linksys Group Inc., which contributed $119 million in revenue.

The service-provider spending was especially welcome news for Cisco, which has bet heavily that the convergence of voice and data networks would translate into higher sales for its most advanced products.

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