Cisco’s Profit Climbs 16% on Demand Boost
Cisco Systems Inc., the world’s largest maker of computer networking equipment, said Tuesday that fiscal third-quarter profit rose 16% on growing demand from telecommunications-service providers.
Net income climbed to $1.41 billion, or 21 cents a share, from $1.21 billion, or 17 cents, a year earlier, Cisco said. Sales in the period ended April 30 gained 10% to $6.19 billion, beating analysts’ expectations.
Chief Executive John Chambers stepped up an effort to lure telecommunications companies as demand from other large corporations slowed. Orders from phone and Internet service providers climbed 25% in the third quarter, helping Cisco compensate for the smallest revenue increase in six periods.
“The numbers all around look very solid,” said Matt Kelmon, president and fund manager at Kelmoore Investment Co., which manages $750 million, including Cisco shares.
Carriers such as BT Group and Verizon Communications Inc. are upgrading networks to deliver calling, video and Web access over a single hookup. That fueled a 23% gain in global sales of networking products to communications providers in 2004.
Excluding one-time costs or gains, profit was 23 cents a share. Analysts surveyed by Thomson First Call had expected 22 cents. Cisco was expected to report third-quarter sales of $6.16 billion, the average estimate of analysts in the Thomson survey.
The earnings report was released after markets closed. Shares of San Jose-based Cisco rose 4 cents to $18.25 in extended trading. They were unchanged at $18.21 on Nasdaq trading and have dropped 6% this year.
Fourth-quarter sales may rise 9% to 11% to $6.45 billion to $6.6 billion, Chief Financial Officer Dennis Powell said on a conference call with analysts. That compares with $6.5 billion expected by analysts surveyed by Thomson.
Orders from U.S. communications carriers surpassed $500 million, rising to the highest level in 15 quarters, Chambers said during the call. Cisco is benefiting as providers buy products based on voice over Internet protocol, which transmits voice calls and video the way e-mail is sent via the Internet.
Cable companies represent a “very good growth market for us,” Chambers said.
To back that up, the company said Tuesday that it had won a contract to provide gear for Comcast Corp., the world’s largest cable television company.
Cisco, with $118 billion in market capitalization, is the largest in its industry and is seen as a bellwether of global demand for networking gear. The shares have fallen after four of Cisco’s last five earnings announcements because comments by Chambers had indicated that customer demand might not be as robust.
Chambers is expanding Cisco’s advanced-technologies division, which sells products that help consumers create wireless home offices. Sales in that unit, which also specializes in storage, security and Internet-based calling, increased to $1.13 billion, Powell said.
Annual sales of Internet-phone systems may exceed $1 billion, while third-quarter orders of network-storage products surged 70%, executives said on the call. Orders for home-networking and percentage rate growth in optical devices rose in the “high 20s,” the company said.
