Cisco 1st-Qtr Net Rises 92%; Sales Exceed Forecasts (Update4)
By Scott Lanman
Technology News
11/06 21:22
San Jose, California, Nov. 6 (Bloomberg) -- Cisco Systems Inc., the No. 1 maker of Internet equipment, said fiscal first- quarter earnings rose 92 percent. Revenue and profit excluding acquisition-related costs increased more than analysts forecast.
Net income rose to $798 million, or 11 cents a share, from $415 million, or 6 cents, a year earlier. Profit before acquisition and options costs and investment gains increased to 18 cents a share, beating the 17-cent average estimate of analysts from First Call/Thomson Financial and up from 11 cents a year earlier. Sales jumped 66 percent to $6.52 billion.
Cisco is selling more switches, routers and fiber-optic network gear to telecommunications companies to handle surging Internet traffic, while large corporations are spending more to upgrade their computer networks. The company expects to exceed analysts' profit forecasts by 2 cents to 5 cents a share, Chief Financial Officer Larry Carter said on a conference call.
``They did about as good a job as they could,'' said Ray Hirsch, head of technology-stock investing at American Express Financial Advisors, which held about 60 million Cisco shares as of September. ``They actually sounded even more upbeat than usual.''
Cisco shares fell $1.63 to $55.13 on the Nasdaq Stock Market before the earnings report. They seesawed in after-hours trading, rising as high as $57.13 and falling as low as $51. They last traded at $54.38.
Hopes for Telecom, Asia
Sanford C. Bernstein analyst Paul Sagawa, who in September downgraded Cisco to a ``market perform'' on concern that telecommunications customers will slow spending, disagreed with Hirsch. He said Cisco's outlook was cloudy, given officials' hope that sales to telecommunications companies will rebound and Asian countries will provide growth.
``I don't think Cisco even knows what calendar year 2001 will bring,'' he said. ``Even with the raised guidance, given what they put up this quarter, it's not too much of a stretch. I think the after-market (trading) is telling you that people are not super impressed.''
It's Cisco's 11th straight quarter of rising sales growth. The San Jose, California-based company was expected to report revenue of $6.32 billion in the period ended Oct. 28, the average estimate of eight analysts polled by IBES International Inc.
The company is forecast to have profit of 75 cents a share in fiscal 2001, the average estimate of analysts surveyed by First Call. Forecasts ranged from 71 cents to 81 cents.
Cisco expects fiscal 2001 revenue to grow 50 percent to 60 percent, Carter said. In the fiscal second quarter, revenue will rise by a percentage in the ``high single'' or ``low double'' digits from the first quarter, Carter said. He said Cisco was raising its forecast.
Slower Spending
Still, some investors are worried that Cisco's sales growth may slow as telecommunications companies restrain spending because they can't or won't pay for new gear. Chief Executive John Chambers said the company was seeing more sales to so-called Baby Bells such as SBC Communications Inc. and Verizon Communications and less to smaller competitors of those companies.
Some of those customers, known as competitive local exchange carriers, or CLECs, are having trouble becoming profitable and securing funds to expand their networks.
Cisco's business of selling products to phone companies, which analysts say represents about 40 percent of revenue, rose 15 percent from the previous quarter, officials said. Orders, though, increased by a percentage in the ``high single digits.''
``The service provider growth was somewhat slower this quarter because of the CLEC issue,'' Chief Strategy Officer Mike Volpi said in an interview.
Corporate Customers
Volpi said the orders figure might be misleading since it doesn't include some models of switches that are mainly sold to corporate customers. Orders from telecommunications companies will rebound this quarter, and Cisco still expects such sales to increase faster than sales to corporate customers, he said.
Orders from the latter group, known as enterprise customers, rose 20 percent from the previous quarter, Chambers said.
The U.S. Securities and Exchange Commission's new Fair Disclosure rule, or Regulation FD, prompted Cisco to offer more detail on its profit and revenue forecasts, such as giving specific profit-per-share and sales-growth estimates, Volpi said.
``This is the first time that we're giving this depth of guidance, and it is because of Regulation FD,'' Volpi said.
Previously, Cisco executives had hinted in conversations with brokerage analysts whether their forecasts were in line with what Cisco would report, Bernstein's Sagawa said.
``That kind of stuff used to happen after the conference call,'' Sagawa said.
Cisco's gross margin, or the percentage of revenue that remains after deducting production costs, was 63.5 percent in the latest quarter, down from 64 percent in the fiscal fourth quarter. Cisco's operating margin, excluding acquisition and stock-option costs, fell to 25.5 percent from 26.5 percent in the previous quarter. Analysts had expected those numbers to decline.
(Teleconference: A Webcast and replay will be available at investor.cisco.com.)
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