FOCUS-Cisco earnings rise again in latest quarter
(Adds analyst, CEO comments, details throughout)
By Duncan Martell
PALO ALTO, Calif., Aug. 10 (Reuters) - Cisco Systems Inc., (Nasdaq:CSCO - news) the world's largest maker of data-networking equipment, on Tuesday reported quarterly earnings in line with analyst forecasts, as sales of equipment to phone companies and Internet service providers rose.
Cisco said profits before charges rose to $727 million, or 21 cents a share, in its fiscal fourth-quarter ended July 31, from $525 million, or 16 cents, a year ago. The results compared with analysts' expectations of 20 cents a share, according to First Call/Thomson Financial.
Revenue rose 48 percent to $3.55 billion from $2.40 billion. It was the sixth consecutive quarter in which revenue had accelerated, a notable achievement, analysts said, given that Cisco is now a $12 billion-a-year company in sales.
Cisco stock, which fell $1.06 to $58.75 in regular Nasdaq trading, rose to $60.88 in late after-hours trading activity despite an initial 25 cents a share drop following the earnings announcement just after the market close.
As sales to its largest customers are now growing more slowly, the networking kingpin is looking to increase sales to small- and mid-sized businesses and to telecommunications providers. Analysts said both efforts are key for Cisco to continue its history of steady profit growth.
''Most surely growth is slowing in the enterprise (big business) market,'' said analyst Michael Cristinziano, an analyst at Gerard Klauer Mattison in New York, ''But overall, it was a near flawless quarter; you'd be hard-pressed to find anything wrong.''
Cisco, No. 1 phone-equipment maker Lucent Technologies Inc. and Nortel Networks of Canada and other data networking and telecommunications equipment providers are racing to develop next-generation communications gear that will transmit voice, data and video using Internet Protocol.
''Whoever can provide the best product at the best price will be the winner,'' Cristinziano said.
Critical for Cisco and Lucent, analysts said, will be which company AT&T Corp. and Sprint, which is developing a packet-based network called Spring ION, pick to provide the gear. AT&T, with its recent acquisitions of cable companies, is aggressively pushing to transmit voice over cable lines.
Chief Executive John Chambers said in an interview that its relationship with AT&T was going well. ''We view AT&T as a very strategic partner and I believe they view us the same way.''
Both revenue and profits were higher than what analysts were expecting, noted analyst Paul Sagawa at Sanford Bernstein, adding that the stock will likely rise on Wednesday.
Gross margin, the percentage of revenue remaining after product costs are subtracted, narrowed to 64.7 percent, in line with a trend Cisco has been detailing for several quarters. The tax rate for fiscal 1999 was 33 percent and will fall to 30 percent for fiscal 2000.
''Right now, the company's executing extremely well,'' Chambers said in the interview. The quarter results, too, ''really set expectations about our opportunities for growth.''
Cisco continued to benefit from the surge in global demand for Internet access with deployment of high-speed Internet access over phone wires and cable modems now underway. Also, increasingly, businesses want to transmit voice, data and video over data networks.
Cisco also has been teaming up with other companies to take advantage of the massive growth of the Internet. On Sunday, Cisco said it would invest more than $1 billion in consulting firm KPMG LLP to help their clients roll out Internet-based communications services.
Fourth-quarter orders in the Americas rose 45 percent from a year ago, increased 55 percent in Europe, and rose 60 percent in Asia, excluding Japan. Orders in Japan rose 28 percent while South America, excluding Brazil, were up 20 percent.
Including charges related to acquisitions, San Jose, Calif.-based Cisco had actual net income of $635 million, or 18 cents a share, in the fourth quarter, up from $493 million, or 15 cents, a year ago.
For the full year, Cisco had profit before charges of $2.55 billion, or 75 cents a share, up 35 percent from $1.88 billion, or 58 cents, a year ago.
Sales rose 43 percent to $12.2 billion from $8.49 billion. Including charges, Cisco had net income of $2.10 billion, or 62 cents, compared with $1.35 billion, or 42 cents, a year ago.
''This quarter being so strong gives me more confidence that they have a buffer going into the Y2K time frame,'' Sagawa said. ''But there will be a slowing in spending (by large customers) and they (Cisco executives) as much said so.''
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