5/9 CSCO..Cisco Profits Rise As Sales Surge 55 Pct
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SAN FRANCISCO (Reuters) - Cisco Systems Inc. (NasdaqNM:CSCO - news) on Tuesday reported third-quarter operating profits that rose 58 percent while sales surged 55 percent as the biggest maker of data networking equipment sold more Internet gear to businesses, telephone and cable companies and Internet service providers.
For the period ended April 29, Cisco said it had earnings before one-time items of $1.03 billion, or 14 cents a share, up from $649 million, or 9 cents, a year ago. Sales rose to $4.92 billion from $3.17 billion. The results topped analyst forecasts of 13 cents a share, according to First Call/Thomson Financial.
Even though Cisco stock fell 7 percent on Monday amid investor concern over its valuation and acquisition strategy, the shares have soared 131 percent in the last 12 months, more than double the gain of the Dow Jones Communications Technology Index. Cisco is benefiting from the rapid roll-out of the Internet and its embrace by governments and businesses, as are competitors such as Lucent Technologies Inc., Nortel Networks Corp. and others.
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``I don't know that I buy the argument that the Internet changes everything, but the economy is strong and people use information technology to compete,'' said analyst Paul Johnson at Robertson Stephens, who follows Cisco. ``Revenue growth was very impressive and it was another brilliant quarter.''
And Cisco is one of the biggest purveyors of information technology. More than 80 percent of Internet traffic is carried by Cisco gear and it has 80 percent of the market for routers, sophisticated hardware and software the directs billions of digital bits across the Internet and networks.
Including one-time items, Cisco said it had net income of $662 million, or 9 cents a share, compared with $636 million, or 9 cents a share, in the year-ago period. This was the ninth quarter in a row the company has reported operating profits that topped analyst forecasts by precisely one penny.
Cisco stock ended the day unchanged at 62 3/4.
``Based on what I see right now, there's nothing I can find fault with in this report,'' said analyst Martin Pyykkonen at CIBC World Markets, who follows Cisco.
$1 BILLION VINDICATION
It was also the first time that Cisco, which first sold shares to the public in February 1990, has reported an operating profit that topped $1 billion. Cisco now jockeys with General Electric Co. for the title of the world's most valuable company.
Unlike recent quarters, Cisco executives said that in the third quarter, sales of routers, switches and other networking gear to big business led the way when compared to sales in the first quarter. Sequentially, sales in that line of business for Cisco rose about 20 percent. Those sales account for half of San Jose, Calif.-based Cisco's total sales, and it was the best performance in more than a year.
Sales of equipment in the communications industry again soared, rising over 80 percent from a year ago, Chambers said on a conference call with analysts. Sales of optical networking equipment, which it acquired when it bought Cerent Corp. for $7 billion last year, rose 60 percent sequentially, and should reach a $1 billion annual run-rate in terms of orders next quarter.
Although analysts questioned the rich price it paid for a company with no sales 12 months ago, the success of the Cerent optical networking product has vindicated the hefty price. ``It did look expensive then but they pulled it off and that product had very impressive performance.''
``If we execute right, Cerent might be one of the safest and most accretive acquisitions we've done,'' Chambers said in an interview. ``The payback came even faster than we anticipated.''
That payback could help quell concerns that Cisco pays far too much to acquire the engineering talent and products it needs, driving up prices across the industry, analysts said.
Balance across the four major geographic regions where Cisco peddles its wares was also very good, Chambers said. Europe, the Middle East and Africa accounted for 26 percent of sales, the Americas 59 percent, Japan 5 percent, and the rest of Asia 10 percent.
It's The Bandwidth, Stupid
While Cisco has been for the past year and a half touting a converged network of voice, data and video, Cisco Executive Vice President Don Listwin broke ranks with that message when he told analysts on the call that service providers in particular are more worried about building out their Internet infrastructure than running voice across their Internet Protocol, or IP, networks.
``It's build the Internet and voice will follow,'' Listwin said. ``They're saying 'we need to add data and integration is not the big payoff right now.' ``
Cisco said that it continued to roll out new products during the quarter and it is also continuing its breakneck acquisition pace, agreeing last week to buy Web-traffic switching firm ArrowPoint Communications Inc. for about $6 billion in stock.
``The industry is just so fast-paced that they have to buy things in the market that may seem expensive,'' Pyykkonen said. ''But they do get paid back in the revenue growth that those products eventually generate.''
``We haven't seen 55 percent revenue and 58 percent profit growth in years,'' Chambers said. ``The fact that the topline growth continues to accelerate at that rate means we're gaining market share in almost every category.'' |
