"It's an extraordinary performance," said Christopher Stix, an analyst with SG Cowen & Co.
The Wall Street Journal -- November 10, 1999
Cisco to Buy
Aironet, Beats
Profit Forecast
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By Scott Thurm
Staff Reporter of The Wall Street Journal
Cisco Systems Inc. breezed through another quarter with accelerating growth and better-than-expected earnings, while soothing investors' fears about the impact of the year-2000 computer glitch.
The San Jose, Calif., company, which makes equipment to route computer traffic over office networks and the Internet, also announced that it will buy Aironet Wireless Communications Inc. for about $799 million in stock, Cisco's 44th acquisition.
Cisco said net income in the fiscal first quarter ended Oct. 30, declined 14% to $438 million, or 13 cents a diluted share, from $512 million, or 15 cents a share, a year earlier. Excluding one-time charges, however, Cisco's earnings soared 49% to $837 million, or 24 cents a share, from $561 million, or 17 cents a share. Analysts surveyed by First Call/Thomson Financial had expected earnings of 23 cents a share, excluding one-time charges, marking the ninth consecutive quarter in which Cisco beat analysts' expectations by exactly a penny.
Revenue climbed 49% to $3.88 billion -- from $2.6 billion in the year-earlier period. It marked the seventh consecutive quarter of accelerating revenue growth, which gets progressively harder as the company grows bigger.
Cisco Chief Executive John Chambers told analysts sales to telecommunications companies are growing faster than 80% a year. As the dominant maker of routing gear for the Internet, Cisco is benefiting from two interrelated trends: the explosive growth of the Internet, which forces telecommunications companies to retool networks to carry computer traffic as well as phone calls; and global deregulation, which spawns competitors without ties to traditional telephone-gear makers.
The result is a financial juggernaut, generating $400 million in cash a month, and adding almost 800 employees a month. At the same time, inventories remained flat and unpaid bills grew at roughly the same pace as sales.
"It's an extraordinary performance," said Christopher Stix, an analyst with SG Cowen & Co.
Mr. Chambers said Cisco is "a little more optimistic" that the Y2K bug will hurt it only slightly or not at all. He said Cisco's sales to big businesses may decline in the fiscal second quarter, ending in January, because some financial companies and government agencies have slowed spending. But telecommunications companies and small businesses are plowing ahead, Mr. Chambers said.
Mr. Chambers said Cisco believes any Y2K-related slowdown would be temporary, affecting only the fiscal second quarter. "We do not plan to make any major changes," he said. Cisco's outlook on Y2K had been widely anticipated since International Business Machines Corp. warned of Y2K-related slowdowns last month.
The results, announced after stock markets closed, triggered a rise in Cisco shares in after-hours trading to $77.625. The shares closed at $74.25, down $1.0625, in 4 p.m. Nasdaq Stock Market trading.
Aironet, based in Akron, Ohio, was spun out of Telxon Corp. earlier this year. It makes equipment to connect computers in an office network without wires. For its second fiscal quarter, ended Sept. 30, Aironet reported net income of $978,000 on sales of $15 million, up from $10 million a year earlier.
The rapid growth attracted Cisco, which wanted a wireless-network offering to counter products from rivals Lucent Technologies Inc., 3Com Corp. and several start-ups. "We've been seeing a tremendous upsurge in demand" for wireless office networks, said Charles Giancarlo, Cisco's senior vice president for small and medium business.
Cisco said it will exchange 0.637 Cisco share for each share of Aironet stock, paying about $47.97 an Aironet share, based on Cisco's Monday price of $75.3125. That's an 11% premium over Aironet's Monday price of $43.25. Aironet shares have more than quadrupled since its initial public offering in July. Yesterday, Aironet shares rose $2.125 to $45.375 in 4 p.m. Nasdaq Stock Market trading. Telxon still owns about 35% of Aironet.
Cisco said it will account for the acquisition as a purchase, and will take a charge of three to eight cents a share in the fiscal third quarter, ending in April 2000.
interactive.wsj.com
Meanwhile, the quarterly book-to-bill ratio was greater than 1, meaning the company continued to take in more in product orders than it was able to ship, Chamber said.
Ibid. |
