Shares in Cisco Fall on Global Outlook
By MATTHEW FORDAHL
The Associated Press
Wednesday, February 4, 2004; 10:52 AM
SAN JOSE, Calif. - Cisco Systems Inc. posted second-quarter profits and revenues that exceeded Wall Street's expectations as businesses loosened their purse strings and increased spending on networking equipment.
Cisco executives said late Tuesday they remain cautiously optimistic about the improving economy after three years of decline. The company expects the current quarter's revenue to increase slightly, even though it's traditionally one of the weakest of the year.
"We continue to believe we have uniquely positioned Cisco as the recovery continues to gain on a global basis," said John Chambers, Cisco's chief executive.
Investors, apparently hoping for a more upbeat outlook, sent Cisco shares sharply lower Wednesday. Cisco shares fell $1.59, or 6 percent, to $24.82 in morning trading on the Nasdaq Stock Market.
For the three months ended Jan. 24, Cisco earned $724 million, or 10 cents per share, compared with $991 million, or 14 cents per share in the same period last year.
Excluding special items, including a $567 million charge related to an accounting change, the San Jose, Calif.-based company earned $1.3 billion, or 18 cents per share, compared with $1.1 billion, or 15 cents per share, in the same period last year.
Sales jumped 14.5 percent over the second quarter of fiscal 2003, to $5.4 billion from $4.7 billion.
Analysts were expecting the company to earn 17 cents per share on sales of $5.29 billion, according to a survey by Thomson First Call.
Cisco, the leading maker of routers and switches through which Internet and other network traffic passes, was hit hard when the telecommunications bubble burst with the dot-coms in 2001 but managed to remain mostly profitable.
In fact, it has now posted seven consecutive quarters of profits above $1 billion.
The company reported strong sales of its core routing and switching products as well as its advanced technology offerings, including storage, security and Internet telephony equipment.
"We are pleased with our sustained financial performance, and continued focus on core and advanced technology research that is key to future growth," said Dennis Powell, Cisco's chief financial officer.
At an investors conference in December, Chambers noted that customers' capital budgets were on the rise again. The sentiment also was reflected during Chambers' comments during the fiscal first-quarter conference call in November.
"Now most of the CEOs in both the U.S. and around the world are slowly increasing their optimism in the global economic recovery," Chambers said Tuesday. "While this momentum is still not as strong as we'd like, it's the second quarter in row that we've had positive year-over-year order increases."
The company expects sales to rise 1 percent to 3 percent in the third quarter, traditionally one of the weakest of the year.
"It's one more proof point that technology spending is on the uptrend," said Barry Jaruzelski, vice president of Booz Allen Hamilton's communications and technology practice. "It's not the gangbuster growth of three or four years ago, but it's still good, solid growth."
Cisco also faces stiff competition in its core routing and switching business from companies such as Dell Inc. and China's Huawei Technologies Co.
"Those threats are emerging. Those players are becoming more aggressive. But because of Cisco's strong operational focus, they've had no impact on their margins," Jaruzelski said.
Cisco also is branching out. Last year, it entered the home networking business with the completion of its $480 million in stock acquisition of Linksys Group Inc.
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