Cisco beats Q2 earnings estimates

Company more optimistic about economic recovery although caution remains

Heralding improvement in the global economy, Cisco Systems Inc. yesterday reported $1.3 billion in net income, or earnings of 18 cents per share, for the second quarter, compared with $991 million, or 14 cents per share, in the same quarter a year ago.

The income, based on generally accepted accounting principles (GAAP), came on net sales of $5.4 billion and beat the consensus estimate of 17 cents per share determined through a survey of analysts by Thomson Financial/First Call. The company's sales likewise beat the Thomson Financial/First Call estimate, which was $5.29 billion.

After an accounting change also using GAAP made on Jan. 24, the last day of the quarter, net income was $724 million, or 10 cents per share, the company said in a statement. As a result of the change, which was made to implement a federal accounting rule, Cisco consolidated Andiamo Systems Inc. and recorded a noncash cumulative stock compensation charge of $567 million, or 8 cents per share, according to the statement.

In the current fiscal quarter, Cisco said it expects its revenue to rise 1% to 3% from the second quarter.

Executives grew more optimistic about the economic recovery during the second quarter, though caution remains, Cisco President and CEO John Chambers said in a conference call after the announcement.

"People are very careful about taking risks in today's environment. ... It's been three years of false starts," Chambers said. "It's a little bit more cautious environment than we've traditionally seen in a recovery."

More U.S. CEOs are optimistic about the global economy now than a quarter ago, though they remain cautious about capital expenditures and hiring, Chambers said. He highlighted good news from the company's large and closely watched U.S. enterprise equipment business: For the first time in two years, that segment has racked up two consecutive quarters of year-over-year revenue increases. In addition, service providers' investment in new equipment, especially outside the U.S., led to healthy sales gains, Chambers said.

Revenue from Cisco's "advanced technology" lineup also grew strongly, with one segment, security products, reaching a yearly revenue rate of about $1 billion, he said. It became the first of the advanced technology businesses to achieve that level. The company's other new technology areas include IP telephony, storage, home networking, optical equipment and wireless. A year earlier, new technologies had brought in just 10% of revenue. Revenue from Cisco's Linksys Group Inc. division, the home networking company it acquired last year, grew 39% from the previous quarter.

The breakdown by revenue of Cisco's businesses held fairly steady in the quarter, with routers making up 26%, switches 39%, services 16%, advanced technologies 15% and other products, including network management software, 4%.

The company's product bookings came from roughly the same places as in the year-earlier quarter: 45% from the U.S.; 30% from Europe, the Middle East and Africa; 12% from the Asia-Pacific region; 7% from Japan; and 6% from other countries in the Americas.

Some product shipments were delayed early in the quarter because of problems with suppliers' ability to deliver components, but those have largely been resolved, executives said on the conference call.

Copyright © 2004 IDG Communications, Inc.

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