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Cisco profits jump nearly 12 percent

Cisco Systems Inc.'s fourth-quarter profits jumped nearly 12 percent Tuesday as the network equipment maker continued to benefit from strong demand.
/ Source: The Associated Press

Cisco Systems Inc.’s fiscal fourth-quarter profits jumped nearly 12 percent as it benefited from strong demand for its traditional routers and switches as well as emerging technologies including Internet telephones.

The world’s largest maker of networking gear also said Tuesday it expects first-quarter sales to increase 10 percent over the $6 billion reported in the same period of fiscal 2005. The forecast was slightly below Wall Street expectations.

As a result, shares fell 78 cents, or 4 percent, in extended-session trading. Earlier, they had closed at $19.61, up 36 cents or 1.9 percent, in regular trading on the Nasdaq Stock Market.

For the three months ended July 30, Cisco earned $1.54 billion, or 24 cents per share, compared with $1.38 billion, or 20 cents per share, in the same period last year. Sales grew 11 percent, to $6.58 billion, from $5.93 billion in the fourth quarter of fiscal 2004.

Excluding special items, the company earned $1.6 billion, or 25 cents per share, compared with a profit of $1.5 billion or 21 cents per share in the same period last year.

On that basis, the fourth-quarter earnings met and sales beat Wall Street expectations. Analysts were expecting the company to earn 25 cents per share on sales of $6.56 billion, according to a survey by Thomson Financial.

In May, the company estimated its fourth quarter revenue would be between $6.45 billion and $6.6 billion.

“The home run ... was the continued balance we’ve achieved across geographies, architectural evolutions, product families and market segments,” said John Chambers, Cisco’s chief executive.

The momentum is expected to continue in the current quarter, though at a slightly lower pace than what Wall Street had expected.

“They’re suggesting the order growth is not changing, but the revenues last quarter were inflated because they were using up some backlog,” said Erik Suppiger, an analyst at Pacific Growth Equities. “That reduces the revenue growth on a year-over-year basis and creates some level of confusion for investors.”

Over the past year, Cisco shares have been trading between $17.01 and $20.63 — a high reached on Sept. 13, 2004.

For the full fiscal year, the company earned $5.74 billion, or 87 cents per share, on sales of $24.8 billion. That compares with a profit of $4.4 billion, or 62 cents per share, on sales of $22.05 billion in the same period last year.

In the fourth quarter, product sales represented about $5.5 billion in revenue while services brought in $1.1 billion. It was the first quarter that Cisco posted more than $1 billion in service sales.

Routers, which direct data over networks, were $1.48 billion, up 3 percent over last year. Switches increased 8 percent, to $2.66 billion. Emerging technologies — including Internet telephones, security and wireless offerings that integrate with its core offerings — rose 27 percent, to $1.16 billion.

“Not only have we achieved the No. 1 position in most of our advance technologies, but we are also continuing to gain market share in almost all advanced technology categories versus the prior industry leaders,” Chambers said.

Cisco began developing six emerging technologies as a way to jump ahead of rivals after the tech boom ended five years ago. So far, that strategy is paying off — and Cisco plans to start introducing additional advanced products.

“We made a decision two years ago to do a second wave of advanced technologies and you will see us announce those over the next 12 to 18 months on a pretty frequent cycle based on customer acceptance and our rollout,” Chambers said.

The company also added 1,400 employees, mostly in the United States, during the fourth quarter. Its head count now stands at 38,413.

Chambers also dismissed a rumor that Cisco was interested in acquiring the Finnish cell phone maker Nokia Corp. It was first reported Sunday by a British newspaper.

He said the company prefers to buy small, private companies in areas where Cisco already has a significant presence.

“It is extremely unlikely for us to ever do a large acquisition. My view is most all of them fail,” he said. “In fact, you can argue the real large ones — almost without exception — have been disappointing.”

He also said he was surprised by Wall Street’s reaction to the rumors “that just are completely outside our strategy and outside our thinking process.”