Networking gear provider Cisco Systems Inc. on Tuesday reported a slightly lower fiscal third-quarter profit as stock-option expenses ate into sales that grew more than 18 percent.
Net income for the three months ending April 29 was $1.4 billion, or 22 cents a share, compared with $1.41 billion, or 21 cents, in the same quarter of 2005. The quarterly results included $188 million, or 3 cents, in stock option expenses as a result of a recent change in accounting rules. Net income would have been $1.2 billion, or 18 cents, had Cisco deducted option costs last year.
Sales rose to $7.3 billion from $6.2 billion last year, helped by the acquisition of Scientific-Atlanta Inc., which was completed in February. It contributed $407 million to sales, San Jose-based Cisco said in a release. Without Scientific-Atlantic’s contribution, sales grew by 12 percent.
“People were expecting it to be a good quarter, and it was generally,” said JMP Securities senior analyst Samuel Wilson. “It was exactly what we expected.”
The revenue gains were spread evenly among most of Cisco’s major geographical regions and product lines, Chief Executive John Chambers said on a conference call with analysts.
“We viewed Q3 in total as a strong quarter, especially given the slower growth that some of our larger peers have been experiencing,” he said.
Excluding options and other expenses, Cisco earned 29 cents per share, which included 2 cents in tax benefits. On that basis, which doesn’t conform to generally accepted accounting principles, Cisco beat the mean forecast of 26 cents in a Thomson Financial survey of analysts.
Controller Betsy Rafael forecast sales in the current quarter to be $7.8 billion to $7.95 billion and revenue for the year ending in July to be a little over $28 billion. Her forecast, which included fourth-quarter revenue of roughly $550 million from Scientific-Atlanta, compared with consensus analyst estimates of $7.9 billion for the fourth quarter and $28.2 billion for the year.
Rafael went on to say that revenue in the quarter ending in October, excluding contributions from Scientific-Atlantic, will be in the lower end of Cisco’s traditional growth range of 10 percent to 15 percent.
Erik Suppiger, who follows Cisco for Pacific Growth Equities, said that when Scientific-Atlantic revenue is removed third-quarter sales grew by about 11.8 percent and sales will grow by about 11.4 percent in the current period. Those numbers, combined with Rafael’s forecast for the quarter ending in October, prompted concerns about revenue growth in Cisco’s traditional turf over the next few quarters.
“You’re looking at indications from management that would suggest decelerating year-over-year growth rates,” Suppiger said.
Cisco’s results Tuesday were the first to include business from Scientific-Atlanta, which Cisco acquired in a $6.9 billion cash deal announced in December. Scientific-Atlanta makes television set-top boxes for cable operators, a business that could help Cisco as it continues to push for more communications to rely on the Internet-based technologies.
“While it is still early to characterize the acquisition as a major success, we are very pleased with the progress of the combined entities,” Chambers said.
Scientific-Atlanta’s contribution of $407 million in the third quarter included only two quarters of business because of the timing of the acquisition’s completion.
The results were released after financial markets closed. Cisco shares fell 33 cents, or 1.5 percent, after finishing the regular session 8 cents lower at $21.68 on the Nasdaq Stock Market. The stock has gained nearly 27 percent so far this year.