Top Financial News
Wed, 03 Feb 1999, 12:06am EST
Cisco Systems 2nd-Quarter Profit Rises 33% on Surging Equipment Sales
Cisco's 2nd-Qtr Profit Rises 33% on Surging Sales (Update4)
(Adds CEO's comments in 6th to 8th, 12th paragraphs.)
San Jose, California, Feb. 2 (Bloomberg) -- Cisco Systems
Inc., the No. 1 computer-networking company, said fiscal second-
quarter profit rose 33 percent as revenue from Internet providers
offset slowing corporate sales.
Profit before charges for the quarter ended Jan. 23 rose to
$606 million, or 36 cents a share, from net income of $457.3
million, or 29 cents, in the year-earlier period. Cisco was
expected to earn 35 cents, the average estimate of analysts
polled by First Call Corp. Revenue surged 40 percent, more than
analysts expected, to $2.83 billion from $2.02 billion.
Cisco's extensive product line and sophisticated software
let it charge more and make a higher profit than rivals for the
equipment it sells to large companies. As corporate sales slow,
Cisco is boosting sales to telecommunications carriers that want
high-speed Internet gear to handle growing data traffic.
''The carrier business is where the growth is,'' said Paul
Weinstein, an analyst at CS First Boston, who rates Cisco
''strong buy.''
Weinstein estimated that telecommunication sales make up
about a third of Cisco's revenue. The company doesn't break out
revenue by markets.
Cisco Chief Executive John Chambers said in an interview
that the company's telecommunications revenue rose more than 50
percent in all geographic areas from a year ago.
Corporate sales rose about 30 percent, while the growth of
sales to small and medium-sized businesses was ''in between those
two'' growth rates, Chambers said.
Rivals Unite
Cisco will face increased competition in the market for
Internet gear sold to phone companies when No. 1 phone-equipment
maker Lucent Technologies Inc. purchases No. 3 networking company
Ascend Communications Inc.
Last month, Lucent agreed to buy Ascend for $20.7 billion to
acquire its powerful computer switches, known as ATM switches,
that let phone companies route data traffic on their networks.
The acquisition is expected to be completed in June.
Cisco's ability to roll out new products for the carrier
market will be key to its success in 1999, Weinstein and other
analysts said.
''Cisco needs to get their next-generation ATM switch out on
time,'' said Craig Johnson, principal analyst with market
researcher Pita Group in Portland, Oregon.
Chambers said the company expects to begin trials of the new
equipment ''later this year.'' Cisco has said it expects to begin
selling its new ATM switch in the fiscal third or fourth quarter.
Strong Revenue Growth
Cisco's revenue growth rate of 40 percent was its best in
seven quarters. Last month, Lucent reported revenue of
$9.2 billion for its first quarter ended in December, 5.5 percent
higher than a year earlier.
''Cisco's top-line growth rate is better than everyone
expected,'' said William Becklean, an analyst at Tucker Anthony
Inc., who rates Cisco ''buy.''
The company's gross margin, or the percentage of sales
remaining after subtracting production costs, was unchanged from
a year ago at 65 percent.
The quarter ''was the company's best ever in terms of new
products,'' Chambers said.
Cisco shares fell 2 39/64 to 112 25/64 in trading of 31.7
million. The San Jose, California-based company, whose stock has
risen more than 20 percent this year, reported results after the
close of regular U.S. trading.
The stock traded as low as 108 1/2 after markets closed, as
some investors were disappointed that Cisco didn't declare a
stock split, analysts said.
''A lot of folks were hoping for that,'' Pita Group's
Johnson said.
The per-share earnings figure from the year-earlier period
is adjusted for a 3-for-2 stock split in September 1998.
In the most recent quarter, Cisco had charges of $318
million, or 19 cents a share, related to four acquisitions.
Including these items, the company had net income of $288
million, or 17 cents a share. There were no gains or charges in
the year-earlier period.
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