Cisco Eludes Double Dip, Posts Strong Quarter

For the period ended July 27, 2002, Cisco's sales jumped 12 percent over last year, to $4.8 billion. Net income, meantime, soared, to $772 million from $7 million a year ago.

In advance of the results posted by Cisco Tuesday, investors--fueled by rumors of another rate cut--drove up shares of the company's stock by 6.25 percent, to $12.07. Enthusiasm aside, there is not yet sufficient reason to believe that Cisco's success foretells a broad recovery in the technology sector. For one thing, the company's outlook for the first quarter of fiscal 2003 remains flat, according to executives. Furthermore, much of Cisco's gains in earnings were derived by steep cost cuts, the company says. And year-end 2002 results underscore that Cisco remains vulnerable to the same tough economic realities that have translated into reduced spending on IT goods and services for nearly everyone.

For the year, Cisco sales totaled $18.9 billion, down 15 percent from 2001. Earnings totaled $1.9 billion, compared to a loss of $1 billion a year ago.

What is clear is exactly what CEO John Chambers has suggested for months--namely that Cisco's operational excellence is distinguishing it from the pack. In a conference call with analysts, Chambers singled out the company's improvements in income, market share gains and other areas as reasons why Cisco is indeed besting its competitors. He did note, however, that the company still has a way to go before it meets revenue objectives, but added that he was pleased it delivered another "solid" quarter.

"Our operational performance is on par with peak historical results, especially in the areas of gross margins and income as a percentage of revenue," Chambers said in a statement.

During the period, the company reached several milestones, including the completion of the acquisitions of Hammerhead Networks and Navarro Networks, the shipment of its one-millionth IP telephone and the introduction of advanced multiservice switches that allow carriers to offer new packet-based services.

Separately, Chambers put to bed rumors during Tuesday's conference call that his time at the company is drawing to a close. The same, however, is not true of Cisco CFO Larry Carter, who plans to retire next May after his 60th birthday. As for Chambers, he remains upbeat about the company's long-term prospects, noting that he plans to remain at Cisco for years to come.

That will be welcome news to Chambers' fans in the channel, who have praised his hands-on approach to partner management in recent months. Cisco partners have noted in recent weeks that the vendor's efforts to curb product dumping by major telco carriers has resulted in reduced margin erosion, though the problem still exists in a number of individual markets.