Communications equipment maker Cisco Systems Inc. on Tuesday posted a 1.8 percent fall in quarterly net profit from stock options expensing, but revenue rose as business customers spent more money on network and security upgrades.
The company beat analysts' earnings estimates by a penny, excluding items.
Cisco reported net income of $1.38 billion, or 22 cents per share for its fiscal 2006 second quarter, compared with $1.4 billion, or 21 cents per share, in the same quarter last year.
Excluding items, Cisco earned 26 cents per share, a penny above analysts' expectations as polled by Reuters Estimates.
"It's in line on revenues and a penny upside on earnings, which is encouraging," said Erik Suppiger, networking and security specialist at Pacific Growth Equities. "I think they are seeing some strength in high-end switching, and adoption of 10-gigabit ethernet is gaining traction in the market and Cisco is benefiting from that right now."
Cisco makes most of its revenue from selling routers and switches, products for directing voice and Internet data.
Revenue for the quarter was $6.6 billion, a 9.3 percent rise over revenue in the same quarter a year ago.
Cisco shares fell in the past two weeks over concerns that the company would disappoint investors with its outlook for the current quarter.
Several large distributors of Cisco products told Banc of America analyst Tim Long that sales momentum weakened during January, Long wrote in a note to investors.
Cisco, so far, has stuck to its long-term revenue growth rate of about 10 to 12 percent. Analysts are projecting third-quarter sales to rise about 12 percent to $6.93 billion from $6.19 billion in the same quarter a year ago, according to Reuters Estimates.
Network equipment accounted for most of Cisco's revenue during the quarter, even as it focused on the home entertainment market with its announcement that it would buy cable set-top box maker Scientific-Atlanta Inc. for about $6.9 billion.
Cisco's stock trades at a discount to most of its peers on the Dow Jones U.S. Telecommunications Equipment index, but at a slight premium to the average valuation for the Standard & Poor's 500 Index.