Cisco Posts Strong Q2 Growth

The company's earnings are increasing and it says it expects the momentum to continue into the next two quarters.

Cisco Systems on Feb. 6 showed that it has continued to roll up healthy earnings increases, reporting a 40 percent rise in net income and earnings per share at $1.9 billion and 31 cents per share respectively for its second fiscal quarter of 2007.

The earnings increase came on the back of a revenue rise of 27 percent to $8.4 billion for the quarter from $6.6 billion in the same quarter a year earlier. Ciscos acquisition of Scientific Atlanta in the third quarter of 2006 contributed $639 million in revenues to Cisco coffers.

For the first six months of its fiscal year 2007, Ciscos revenues rose to $16.6 billion from $13.2 billion, with Scientific Atlanta contributing $1.2 billion of that.

Cisco said it expects the momentum to continue into the next two quarters, with projections of a revenue increase of 15 to 17 percent for its third fiscal quarter and 14 to 16 percent for its fourth fiscal quarter. Cisco expects to generate revenues of $8.7 billion to $8.8 billion for its third fiscal quarter and $9.0 billion to $9.3 billion for the fourth fiscal quarter.

The continued momentum for fiscal 2007 boosted Ciscos expectations for full-year revenues to a 16 to 17 percent increase—well above its long-term projections of 10 to 15 percent.

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Ciscos big bet on its Scientific Atlanta acquisition thus far has paid off better than expected and will continue to boost Ciscos revenues. Revenue from the Scientific Atlanta acquisition is expected to increase between 19 to 20 percent in the third fiscal quarter.

"The key takeaway in Q2 is that momentum remains strong," said John Chambers, chairman and CEO of Cisco, based in San Jose, Calif. "As more and more of communications and IT capabilities are moving into the network, our architectural approach based on intelligence in the network is increasing total market share for Cisco. We believe the network is becoming the platform for all forms of communications in IT. The expanding role of the network builds on the end-to-end differentiation weve been investing in," he added.

Cisco saw surprising balance in growth across its different product areas and geographies. The one exception to that was Ciscos enterprise business in the United States, where Cisco saw single-digit growth.

"We saw moderate growth in the enterprise market in Q2, following strong growth in the first quarter. It was probably a small bump, but with the usual caveats, well continue to watch this area," Chambers said.

Cisco is seeing strong momentum in the service provider market, where Chambers characterized Cisco as becoming a "strategic business partner in many service provider accounts. While its too early to say, I would [compare this growth] to Ciscos growth in the enterprise markets in the mid-1990s," he said.

Chambers was especially bullish on the opportunities presented by video—both in the consumer entertainment market and in commercial applications. "Video is potentially the killer app," he said.

Scientific Atlantas faster-than-expected growth is due in part to the growth of HDTV, which boosted the units transmission and set-top box revenues, according to Scientific Atlanta CEO Jim McDonald.

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