Cisco reports better-than-expected profit

/ Source: Reuters

Cisco Systems Inc. reported a better-than-expected quarterly profit and gave a strong outlook on Wednesday, as Internet traffic growth boosted orders for network equipment, pushing its shares up 7.5 percent.

Scientific Atlanta, the cable set-top box maker it bought in February, also showed strong sales growth, validating Cisco’s expansion into the consumer market from its traditional business of making routers and switches.

Fiscal first-quarter revenue rose 25 percent to $8.2 billion, with Scientific Atlanta contributing $584 million. Wall Street analysts, on average, had expected $7.9 billion in revenue, according to Reuters Estimates.

“It’s a very impressive quarter. I think there was certainly some expectation for upside and they delivered considerable upside,” said Erik Suppiger, an analyst at Pacific Growth Securities.

Chief Executive John Chambers told analysts on a conference call he expected second-quarter revenue growth of 24 percent to 25 percent over a year ago, or 14 percent to 15 percent growth excluding Scientific Atlanta. The market consensus forecast had been for second-quarter revenue growth of about 21 percent.

First-quarter profit before special items rose to $1.9 billion, or 31 cents per share, from $1.6 billion, or 25 cents per share, a year ago. That beat the average analyst forecast of 29 cents per share, according to Reuters Estimates.

Chambers said a key growth driver was telecommunications and cable service providers upgrading networks to handle rising consumer demand for Web-based video, such as on

Phone companies launching Internet-based TV services, or IPTV, are also bolstering sales, he said.

Orders from U.S. service providers grew about 30 percent.

“I think the deployment of IPTV and next-generation carrier networks is going to be a pretty strong market opportunity for Cisco,” Pacific Growth’s Suppiger said.

Cisco has expanded into the consumer video market in the past few years. Besides Scientific Atlanta, it has also bought video-on-demand software maker Arroyo Video Solutions and launched a high-definition video conferencing system, TelePresence.

Analysts say it was important for Cisco to diversify as phone carriers are merging, a trend that could eventually lead to slower spending on network equipment.

But Cisco said it did not see much of an impact of such consolidation so far, with first-quarter revenues for routers up 13 percent and switches up 15 percent year-over-year.

Analysts said there also appeared to be no impact from a recent slowdown in the U.S. economy.

“It’s hard to tell how the slower overall economy is impacting them when their results are so strong,” said Tim Ghriskey, chief investment officer at Solaris Asset Management.

Chambers said balanced geographic growth was helping, with orders from emerging markets up more than 40 percent. He expected sales to Japan, a key market that is starting to build next-generation networks, to gain momentum this quarter.

The stock has risen 50 percent in 2006, compared to a 6 percent rise in the Nasdaq 100 and a 16 percent fall in rival equipment maker Juniper Networks Inc.

Cisco also said it had repurchased 66 million shares of common stock at an average price of $22.85 for an aggregate purchase price of $1.5 billion during the quarter.