News
Cisco 3Q Profit Surges 34 Percent
Cisco Systems Inc.'s fiscal third-quarter profit surged 34 percent as widespread
networking upgrades and consumers' thirst for more bandwidth continued to fuel
the company's robust growth.
The company narrowly beat Wall Street's expectations. However, the report disappointed
investors hoping for more from the tech bellwether. Cisco's stock, which had
climbed 8 percent in the last month, plunged in after-hours trading.
Cisco said Tuesday that net income for the three months ended April 28 was
$1.87 billion, or 30 cents per share, compared with $1.4 billion, or 22 cents
per share, during the same period last year.
Excluding one-time charges, San Jose-based Cisco earned 34 cents a share, a
penny higher than analysts surveyed by Thomson Financial were expecting.
Cisco, the world's largest provider of the routers and switches for directing
data traffic over computer networks, rang up $8.87 in billion in sales during
the quarter, including a $752 million boost from cable television box seller
Scientific-Atlanta Inc.
Revenue grew 21 percent over last year and topped the $8.76 billion that analysts
were expecting.
Management is bullish that the appetite for its networking gear will continue
to drive long-term growth as more tools are needed to manage booming Internet
traffic.
"We are more optimistic about our expectations than we've been for some
time," Dennis Powell, Cisco's chief financial officer, told The Associated
Press. "And we believe that we're going to continue to see solid growth
on a global basis. We believe we're beginning to see our strategy pay off of
the network becoming the platform for all of communications."
Cisco has profited from hearty demand for its products as more people come
online worldwide and bandwidth-intensive multimedia downloads suck up more network
capacity.
However, some financial analysts have expressed fears about Cisco's ability
to maintain its rapid expansion.
While sales in most segments are growing in the double digits, a sudden slowdown
in a key area of Cisco's business -- orders from U.S. businesses -- has spooked
investors.
Cisco's U.S. enterprise segment grew 20 percent in the first three months of
the fiscal year but has since contracted to mid-single digit growth.
Investors are unsure whether the sluggishness portends a looming deceleration
in other markets or an isolated downturn. Cisco counters that the segment comprises
just 13 percent of overall revenues, dwarfed by faster-growing foreign markets
that make up more than half of the company's business.
"Today we truly are a global company operating in a global economy,"
Powell said.
John Slack, equity analyst with Morningstar Inc., said Cisco posted a solid
quarter and has enough breadth to offset weakness in one area with expansion
in others. He said the stock fell victim Tuesday to overeager investors who
have run up the stock price and expected higher guidance.
"These guys continue to execute, execute, execute," Slack said. "But
this is a case where Wall Street's expectations had been running up in the past
few weeks. It's a typical sell on the news thing. I don't expect much downside
from here."
Cisco is expecting sales to grow 15 percent to 16 percent in the fourth quarter
to $9.2 billion to $9.3 billion. That's slightly lower than the $9.33 billion
anticipated by analysts, but above the high end of the company's own long-term
growth targets.
The company is expecting gross margins to remain flat at about 64.5 percent
in the current quarter.
Cisco shares finished regular-session trading up 55 cents, or nearly 2 percent,
to $28.36. In after-hours trading, the stock fell more than 5 percent.