IE 11 is not supported. For an optimal experience visit our site on another browser.

Cisco profit beats subdued expectations

/ Source: The Associated Press

Cisco Systems Inc.'s profit fell 5 percent in its fiscal third quarter but beat Wall Street's expectations, a sign the turbulent U.S. economy didn't rattle the world's largest networking equipment maker as hard as expected.

The San Jose-based company reported Tuesday it earned $1.77 billion, or 29 cents per share, during the three months ended April 26. That represents a drop of 5.4 percent from the $1.87 billion, or 30 cents per share, that Cisco earned during the same period a year ago.

Stripping out 9 cents per share in one-time charges for acquisition and employee stock-based compensation, Cisco earned 38 cents per share. That's 2 cents per share above the average estimate on the same basis from analysts polled by Thomson Financial.

Sales were also higher than analysts' subdued forecasts, coming in at $9.79 billion in the third quarter, a 10.4 percent jump over the year-ago period, when Cisco's sales were $8.87 billion. Analysts were expecting sales of $9.75 billion in the third quarter this year.

Wall Street wasn't expecting fireworks from Cisco in the third quarter because the technology bellwether lowered its sales-growth target in February. Cisco blamed weakness in the U.S. economy, which was causing big customers to delay or scuttle big purchases involving Internet infrastructure.

Investors were merely hoping the company, which makes routers and switches that direct Internet traffic, would manage a slowdown in technology spending in the U.S. and at least report in line with expectations.

"Considering the relatively mixed economic environment we're in, I think it was a really good quarter from a balance perspective and an execution perspective — we did what we said we were going to do," Jonathan Chadwick, Cisco's corporate controller, said in an interview.

The company's worldwide base helped it overcome sluggishness in the U.S. in the third quarter.

Cisco's overall sales of routers were up 14 percent over last year to $2 billion, and sales of switches were up 3 percent to $3.2 billion. Sales of so-called advanced technologies like wireless home routers and set-top boxes were up 17 percent to $2.4 billion.

Meanwhile, sales to large corporations in the U.S. continued to grow more slowly than they have in the past, rising in the mid-single digits in the third quarter, a sign that technology spending among some of Cisco's biggest customers remains tight.

The slowdown appears to have spread to Internet service providers as well. Orders from service providers in the U.S. were down 3 percent over last year, a surprising sign after a lengthy period of robust growth.

Chadwick said some Internet providers have cut their short-term spending on infrastructure, but added that Cisco expects the business to pick up again soon because service providers need to keep upgrading their networks.

Cisco also offered fourth-quarter guidance of 9 percent to 10 percent sales growth that matched analyst expectations. On a conference call with analysts, Cisco's chief executive, John Chambers, said he expects companies in the U.S. to remain cautious about spending until at least the end of 2008.

Investors were apparently relieved the damage from weakness in the U.S. wasn't worse and bid up Cisco's shares.

Cisco gained 31 cents to $26.64 in after-hours trading after the results were reported. The stock had closed up 5 cents at $26.33 during the regular trading session.