Chambers Remains 'Cautiously Optimistic' About Year Ahead

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Despite beating Wall Street's expectations for its second quarter, Cisco Systems remains "cautiously optimistic" about business in the year ahead, tempered by its traditional "healthy paranoia," said President and CEO John Chambers.

Speaking to investors on a conference call Wednesday, Chambers said he expects the current quarter to be flat to up in the low single digits compared with its second quarter. Cisco's third fiscal quarter is traditionally a challenging quarter for the company, he said.

Cisco provided no guidance beyond the current quarter.

Cisco Wednesday reported second-quarter net income of $660 million, or 9 cents per share, compared with net income of $874 million, or 12 cents per share, for the same quarter last year. Analysts had expected the company to post earnings of 5 cents per share, according to First Call/Thomson Financial consensus estimates.

Cisco posted revenue of $4.8 billion for the quarter ended Jan. 26, the second quarter of its 2002 fiscal year. Second-quarter revenue was down 29 percent from revenue of $6.7 billion in the same quarter a year ago, but showed an increase of 8 percent over the $4.4 billion the company reported for its fiscal 2002 first quarter. Cisco posted a loss of $268 million, or 4 cents per share, for the first quarter of fiscal 2002.

"This was a very solid quarter," Chambers said, citing market-share gains and strong operational performance in a very challenging market.

Still, Chambers said, "We continue to balance this calm confidence with a healthy paranoia, especially in these challenging times."

Chambers said visibility going forward is still very limited, "because our customers' visibility for their own revenues is still very limited."

And while economists see the economy turning around, the CEOs that Cisco talks to see a plateau instead, and are being very conservative with their IT and capital expenditure budgets, Chambers said.

However, many of the CEOs expect to increase budgets as the economy improves, Chambers said.

Also on the call, Cisco CFO Larry Carter explained that an internal memo from a Cisco executive was inadvertently distributed to a large number of Cisco employees Tuesday night. The memo characterized Cisco's second quarter results as positive, but did not include specific information about revenue or earnings. Cisco announced the mistake early Wednesday and confirmed that its results for the second quarter would indeed exceed analysts' expectations when it reported later in the day.

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