Telecom Spending Bolsters Cisco
Spending by telecommunications firms drove quarterly sales at Cisco Systems Inc. to their highest level in more than three years, though net income fell because of costs from a pending acquisition, the company said Tuesday.
The world’s largest maker of computer networking equipment said profit in its fiscal second quarter fell to $724 million, or 10 cents a share, from $991 million, or 14 cents, a year earlier. Without the $567 million in acquisition costs, Cisco would have had profit of $1.3 billion, or 18 cents. Second-quarter sales rose 15% to $5.4 billion.
Sales to telecom, Internet and other service providers accounted for one-quarter of Cisco’s revenue in the three months ended Jan. 24, delivering an unexpectedly strong boost to the top line.
Cisco’s report gave some of the most compelling evidence to date of a resurgence in the long-suffering telecommunications industry. Chief Executive John Chambers also credited the improving economy, saying that more than half of Cisco’s customers had turned optimistic in their outlook.
“The external factors are continuing to be more positive,” he said in a conference call with analysts.
The company predicted that sales in the current quarter would be 18% to 20% higher than in the same period of 2003. Cisco shares gained 21 cents to $26.41 on Nasdaq, then fell to $25.28 in after-hours trading after the results were released.
The dip may have been in reaction to Chambers’ comment during the conference call that customers are remaining conservative with their technology budgets, Piper Jaffray analyst Sanjiv Wadhwani said.
“The forward guidance may be construed as underwhelming,” C.E. Unterberg Tobin analyst Mark Sue said. “Some growth investors had expected more.”
The one-time costs are for stock compensation related to Cisco’s planned takeover of Andiamo Systems Inc., a storage switch maker in San Jose.
Another hiccup in the quarter, Cisco said, was that kinks in its supply chain delayed some shipments. That drove up its accounts receivable by $622 million to $2 billion. It said it was pleased with the high quality of the customers owing those bills.
New orders slowed in the second quarter, suggesting declining sales. That is typical for Cisco at this point in the year; the company still predicted revenue would climb slightly in the third quarter on a sequential basis.
Cisco executives said the company had done better than expected in sales, profit margin and other key metrics. Productivity per employee rose 6% from the first quarter to $632,000; Cisco is aiming for $700,000 per worker.
Chambers said investments in new areas were paying off, with storage, security and other small operations growing to account for 15% of its overall revenue. Sales of network security gear alone were $250 million in the second quarter.
Sales at Linksys, a recently acquired maker of home-networking gear, rose 39% from the first quarter to $165 million, though they had no effect on earnings per share.
