Cisco Systems Beats Estimates Amid Earnings Slide

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Cisco Systems lived up to its own promises and beat Wall Street's second fiscal quarter financial targets.

But the networking giant's profit still fell almost 25 percent, and sales dropped almost 30 percent from the same quarter a year ago.

CEO John Chambers says he was pleased with the results for the quarter that ended Jan. 26, but he was also realistic about the future.

"We have felt there would be a rapid consolidation in the market with fewer players and if we continue to maintain our momentum with [gains in market share, we have the chance to break away,' Chambers says. "Our results are major indications our strategy is evolving. Having said that, we have a long way to go. We balance this calm confidence with a healthy paranoia.'

Outlook for the third quarter is not overly rosy. CFO Larry Carter told analysts during a conference call that the third quarter is usually "subject to seasonality.' Sales are likely to be flat or up slightly, he said.

Cisco reported second-quarter 2002 revenue of $4.8 billion, up 8 percent from the $4.4 billion the company reported for its first fiscal 2002 quarter. But during the second quarter a year ago, the company reported $6.7 billion in net sales.

Net income was $660 million, or 9 cents a share. During the same quarter last year, net income was $874 million, or 12 cents a share.

Excluding charges, income would have been $644 million, or 9 cents a share. Analysts polled by First Call/ Thomson expected earnings of 5 cents a share on revenue of $4.55 billion.

In an unusual move, Cisco officials released a statement before the market opened on Wednesday saying that its results would top analysts' forecasts. Officials said they issued the statement because an executive had inadvertently released a memo on Tuesday saying orders had exceeded internal projections.

Other good news cited by Chambers during a conference call included:

  • The company generated more than $2 billion in cash during the second quarter bringing its total of cash and investments to $21 billion.

  • Gross margins for the quarter were 61.7 percent compared to 60.5 percent during the previous quarter and 61.8 percent during the second quarter of last year.

  • Revenue per employee grew 10 percent sequentially.

    Cisco ended the quarter with 36,786 workers, down 760 from the previous quarter.

    Chambers says the company's growth opportunities are in sales of IP telephony equipment, wireless LANS and enterprise switches.

    The networking industry as a whole has experienced a drop-off in sales, partly because enterprises have curtailed spending on networks.

    But Chambers says there could be some spending as the economy gets better and as companies take advantage of Internet applications as they strive to make their workforce more productive.

    "The majority of CEOs and government leaders understand network applications increase productivity and they will spend as their economies improve,' Chambers told analysts.

    Cisco's shares, which trade on the Nasdaq, closed Wednesday at $18.61 after reaching a daily high of $19.25.

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