>May 10, 2000
Cisco Continues Its Roll,
As Revenue Soars 55%
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Cisco Systems Inc. continued to break new ground by growing at a rate rarely seen in a large global company.
For the 10th time in a row, the San Jose, Calif., computer-networking company reported accelerating revenue growth when it released its quarterly earnings Tuesday. Fiscal third quarter revenue climbed 55% from a year earlier, up from the 53% rate in its fiscal second quarter. That jump in the latest quarter came even though some analysts had braced for a slight slowdown in sales, fearing the "law of large numbers" had to eventually catch up with Cisco. And once again, Cisco posted earnings on operations a penny a share higher than analysts had predicted -- the 12th consecutive quarter it has beat forecasts.
Growth rates like those are increasingly difficult for a company of Cisco's size to maintain. But with no letup apparent in global interest in the Internet, Cisco executives continued to be upbeat about their prospects. In addition, most analysts said they were hard-pressed to find clouds on its horizon.
SEC Is Investigating Trading Ahead of ArrowPoint-Cisco Deal (May 9)
Talk About Cisco Dominates Stock Message Board Chatter (May 9)
Company profile: Cisco Systems
"The fact is this company has continued to perform in a manner unlike any other tech stock in the last decade," said Andy Schopick of Nutmeg Securities. "Its consistency is outstanding. And its rate of growth is frankly unbelievable. Nothing goes on forever, but they are an outstandingly well-positioned company."
For the quarter ended April 29, the company's net income rose 4.1% to $662 million, or nine cents a share, from $636 million, or nine cents a share, a year earlier. Excluding some one-time charges, profit was $1.03 billion, or 14 cents a share, compared with the 13-cents-a-share consensus on Wall Street, as measured by First Call/Thomson Financial. Revenue totaled $4.92 billion, up from $3.17 billion.
Profit margins fell slightly, though less than the company had warned they might. While analysts cheered the latest quarterly news, Wall Street largely shrugged it off. In after-hours trading following release of the report Tuesday, Cisco shares rose only to $63. In 4 p.m. Nasdaq Stock Market trading, they were unchanged at $62.75.
Cisco long ago came to dominate the market for the networking products that big companies use to run their corporate systems. In the past few years, much of its growth has come from a new class of companies: Internet service providers and new-breed telecommunications carriers.
Martin Pyykkonen, an analyst with CIBC Oppenheimer, said Cisco's position in this new and fast-growing market was indeed strong when compared with rival Lucent Technologies Inc., though Mr. Pyykkonen said Nortel Networks Inc. is doing well in several key areas.
During yesterday's conference call with analysts, Cisco executives said they are developing the same reputation as a one-stop, end-to-end supplier in the new telecommunications markets that they already have with corporate customers.
But one reason Cisco is eager to make that argument, said analysts, is that it is trying to hold on to customers in the face of a new batch of competitors.
Paul Johnson, with BancBoston Robertson Stephens, said Cisco is carefully watching several Silicon Valley start-ups, such as Juniper Networks Inc., which are marketing high-end products that many analysts say outperform Cisco's. Mr. Johnson noted that the total sales from these new companies now represent 17% of Cisco's revenue, compared with just 11% a year ago, and said Cisco's long-term growth could be threatened if the trend continued.
John Chambers, Cisco's chief executive, while acknowledging the competition, said Cisco's products have lately been outselling those targeted against it by the likes of Juniper.
Indeed, Cisco's steady financial performance is the envy of the corporate world. Paul Sagawa, an analyst with Sanford C. Bernstein, said Cisco maintains tight controls on its business, and can, if it needs to, hold back on sales at the end of a quarter if it doesn't need the revenue to meet its targets. Mr. Sagawa said the practice gave Cisco a buffer it could use to ease the impact of any slowdown in sales.
Mr. Chambers said the company isn't "managing" its revenue, which would be frowned on by regulators, but said Cisco was benefiting from its stringent business controls. "I want to run the most-predictable company on the street," he said.
Looking forward, Mr. Chambers was upbeat. "I am as optimistic as I have ever been about the opportunities in front of us," he said.
Cisco's stock performance is such that for a while last month it was the most highly valued company in the world. Its stock has since fallen to second, behind General Electric Co., with some of that decline coming this week following reports, including one in Barron's, the financial weekly published by Dow Jones & Co., which questioned Cisco's high valuation. |
