AP
Cisco Shares Sink on Forecast
Wednesday February 6, 6:52 pm ET
By Jordan Robertson, AP Technology Writer
Cisco 2Q Profit Matches Wall Street Forecast, but Sales Growth Slowdown Spooks Investors


SAN JOSE, Calif. (AP) -- Cisco Systems Inc.'s second-quarter profit matched Wall Street's subdued expectations, but shares of the world's largest Internet networking supplier plunged on signs that economic jitters will continue to hurt sales growth.

The San Jose-based company's guidance of 10 percent sales growth in the third fiscal quarter fell below the 15 percent projection by Wall Street analysts.

The forecast disappointed investors, who viewed it as a sign technology spending will continue to weaken as companies gird for a possible recession in the U.S.

Cisco executives acknowledged many companies are being cautious about investing in new Internet equipment, but they predicted growth will soon pick up again, helped by surging demand in emerging markets.

"It's important to keep in perspective that even in these economic times, we're seeing solid growth on a year-over-year basis," said Dennis Powell, Cisco's chief financial officer.

Powell said Cisco experienced sudden slowdowns in January in several markets in the U.S. and in European Internet service providers. Uncertainty about how long the slump will continue prompted the company to be "prudently conservative" with its guidance, he said.

Cisco shares sank on the gloomy outlook, falling $1.77, or nearly 8 percent, to $21.31 in after-hours trading. It had slipped 18 cents to close at $23.08 during the regular trading session, before the results were released.

Investors have punished Cisco's stock severely during the past four months on fears the company isn't as well insulated from U.S. economic pressures as previously thought.

The company's market value has been chopped by one-third, falling from more than $200 billion in November to around $140 billion today. The stock plunge was triggered by a troubling assessment of U.S. tech spending offered by Cisco CEO John Chambers after the company's last earnings report.

Despite the economic pressures, Cisco's second-quarter report showed the company continues to profit from rising Internet demand and heavy investment in network infrastructure by corporations and Internet service providers.

Cisco said Wednesday that its net income was $2.06 billion, or 33 cents per share, during the three months ended Jan. 26. That's 7 percent higher than its profit of $1.92 billion, or 31 cents per share, during the same period a year earlier.

Excluding one-time charges, Cisco made a profit of 38 cents per share, matching the figure predicted by analysts polled by Thomson Financial.

Sales climbed more than 16 percent during the latest period, rising from $8.44 billion to $9.83 billion. Analysts were expecting $9.8 billion in sales.

Cisco attributes the rise to increases in all its major product categories, including its routers and switches that direct Internet traffic and other technologies and let Cisco capitalize on rising Internet usage around the world.

In the first half of Cisco's fiscal year, the company pulled in $4.27 billion in profit, a 21 percent jump over the same period last year, and $19.39 billion in sales, a 17 percent increase.