Network use propels Cisco past estimates

Cisco Systems Inc. reported better-than-expected quarterly profit and gave a strong outlook Wednesday as Internet traffic growth boosted orders for network equipment. The news pushed its shares up 7.6% in extended trading.

Scientific-Atlanta, the cable TV set-top box maker it bought in February, also showed strong sales growth, validating San Jose-based Cisco’s expansion into the consumer market from its traditional business of making routers and switches for data transmission.

Fiscal first-quarter revenue rose 25% to $8.18 billion, with Scientific-Atlanta contributing $584 million. Wall Street analysts, on average, had expected $7.9 billion in revenue, according to Reuters Estimates.

Net income for the quarter that ended Oct. 28 rose 28% to $1.61 billion, or 26 cents a share, compared with $1.26 billion, or 20 cents, last year.

“It’s a very impressive quarter,” said Erik Suppiger, an analyst at Pacific Growth Securities. “I think there was certainly some expectation for upside, and they delivered considerable upside.”

Cisco Chief Executive John Chambers told analysts on a conference call that he expected second-quarter revenue growth of 24% to 25% from a year earlier, or 14% to 15% excluding Scientific-Atlanta. The market consensus forecast had been for second-quarter revenue growth of about 21%.

Profit before special items was $1.9 billion, or 31 cents a share, up from $1.6 billion, or 25 cents, a year earlier. That beat the average analyst forecast of 29 cents a share, according to Reuters Estimates.

Chambers said growth was driven in part by telecommunications and cable service providers upgrading networks to handle rising demand for Web-based video, such as that at YouTube.

Phone companies launching Internet-based TV services, or IPTV, also bolstered sales, he said. Orders from U.S. service providers grew about 30%.

“I think the deployment of IPTV and next-generation carrier networks is going to be a pretty strong market opportunity for Cisco,” Suppiger said.

Cisco has expanded into the consumer video market in recent years. In addition to buying Scientific-Atlanta, it acquired video-on-demand software maker Arroyo Video Solutions and launched a high-definition videoconferencing system called TelePresence.

Analysts said it was important for Cisco to diversify as phone carriers merge, a trend that could lead to slower spending on network equipment.

But Cisco said it saw little effect of such consolidation so far, with first-quarter router revenue up 13% year over year and switches up 15%.

Analysts said there also appeared to be no effect from the softening of the U.S. economy.

“It’s hard to tell how the slower overall economy is impacting them when their results are so strong,” said Tim Ghriskey, chief investment officer at Solaris Asset Management.

After gaining 26 cents to close at $25.10, Cisco shares rose to $27.01 after hours.