AP
Cisco 1Q Profit Jumps 37 Percent
Wednesday November 7, 7:03 pm ET
By Jordan Robertson, AP Technology Writer
Cisco 1Q Profit Rises 37 Percent but Stock Slips on Fear Key Orders Are Slowing


SAN JOSE, Calif. (AP) -- Cisco Systems Inc.'s first-quarter profit jumped 37 percent, edging the world's largest networking supplier past Wall Street's estimate Wednesday as demand continued rising for sophisticated Internet machinery.

But shares plunged 9 percent on fears that sudden sluggishness in orders from large U.S. corporations could portend a wider slowdown, an interpretation of the results that Cisco refuted.

Net income was $2.2 billion, or 35 cents per share for the three months ended Oct. 27. That compares with $1.6 billion in profit, or 26 cents per share in the year-ago period.

Stripping out one-time charges, the San Jose-based company reported earning 40 cents per share, four cents more than the average estimate of analysts polled by Thomson Financial.

Cisco makes routers and switches that direct Internet traffic. It competes with Alcatel-Lucent SA, Nortel Networks Corp. and Juniper Networks Inc.

Cisco's strong sales in the first quarter helped it slightly beat analysts' forecasts. Cisco rang up $9.55 billion in sales during the period, a 17 percent jump over the $8.2 billion recorded last year. Analysts were expecting $9.54 billion in sales.

Concerns about the company's ability to sustain its growth rate dog Cisco, however. Shares finished the regular trading session down $1.33, to close at $32.75. They fell another $3.02, more than 9 percent, to $29.73 in after-hours trading after the earnings report came out.

While Cisco's growth is robust in other countries, some analysts worry about growth slowing in orders from large U.S. businesses, one of the company's core markets.

That segment was expanding at a 20-percent clip early last year. But its growth has fluctuated since then, falling in the current quarter to the mid-single-digit range.

Management sought to assure investors about the company's long-term prospects, reaffirming its long-term revenue growth-rate target of 12 to 17 percent. Sales in the second quarter are expected to grow 16 percent.

"Our business is across every major country in the world, and it's across all product lines, and it's really across all customer segments," Cisco Chief Executive John Chambers said in an interview. "U.S. enterprise is down to only 40 percent of our total U.S. business. The other two major U.S. customer segments -- service provider and commercial -- are very strong."

Though Cisco's primary business is selling routers and switches, the company is quickly expanding to reap more profits from related markets, including blossoming demand for advanced networking gear and other technologies to handle voice, video and data traffic over the Internet.

Recent acquisitions include the $3 billion takeover of online meeting company WebEx Communications and the $7.1 billion purchase of cable set-top box maker Scientific-Atlanta.

Routers and switches accounted for more than half of Cisco's total sales in the first quarter, with both segments growing steadily -- up 18 percent and 8 percent over last year, respectively.

But Cisco's fastest growth came in its advanced technologies division, which includes WebEx, Scientific-Atlanta and the Linksys home networking unit, among other technologies. That division contributed $2.4 billion in sales, a quarter of Cisco's total revenues and 24 percent more than last year.

While investors were displeased Wednesday, Cisco stockholders had benefited from a rapid run-up in the share price that created more than $30 billion in shareholder wealth since the start of the year.