Cisco Reports Flat Earnings, Strong Revenue Increase

The company is bullish on its quarter overall and in looking ahead into the next quarter.

Despite flat earnings in its third fiscal quarter of 2006, Cisco Systems was bullish on its quarter overall and in looking ahead into the next quarter.

Cisco posted a net income of $1.4 billion or 22 cents a share for the quarter ending April 29, similar to the same quarter a year earlier.

But revenue rose 18 percent to $7.32 billion, with the help of Ciscos Scientific Atlanta acquisition, which contributed $407 million to revenues in the quarter.

That was at the high end of the guidance Cisco gave for the acquisition last quarter, according to CEO John Chambers.

"In general as intelligence moves throughout the network, the network becomes a primary driver for all forms of communication. If this is the way the market evolves, Cisco is uniquely positioned…" said Chambers in Ciscos earnings call May 9.

/zimages/3/28571.gifTo read more about Ciscos second-quarter earnings, click here.

Excluding Scientific Atlanta product orders, Cisco saw 20 percent order growth across its eight other Advanced Technology areas, despite a disappointing 20 percent drop in Ciscos Optical Advanced Technology area.

Cisco as of its first fiscal quarter of 2007 will no longer count Optical as a separate Advanced Technology.

"It wont be tracked separately as some of our other technologies. It reflects the fact that optical is more of an access technology, where the market is not going to grow as aggressively as it had in the past," said Charlie Giancarlo, senior vice president and chief development officer for Cisco.

Cisco does, however, plan to integrate the optics technology from that Advanced Technology area into its switches and routers over time, he added.

Revenue-wise, Advanced Technologies as a whole reached $1.69 billion in revenue, up 42 percent.

Of Ciscos original six Advanced Technology areas, three—security, IP Telephony and home networking—have reached $1 billion in total revenue.

Wireless after a "couple of slow quarters" is growing rapidly now, as is storage, Giancarlo said.

Ciscos mainstay switching business saw an unexpected jump of 13 percent to $2.69 billion in revenue for the quarter.

Whether it means that enterprises are finally going to upgrade their networks is "too early to predict," said Giancarlo.

"If the next quarter goes well on the switching side, then upgrades that have been held back since 2000 and 2001 are finally under way and those are in anticipation of [adding] a number of advanced technologies, including wireless, voice over IP and the rollout of new applications on our customers networks and general upgrades," he said.

That could very well be the case. During the quarter Cisco sold its 8 millionth IP phone, and Cisco consistently sells five times as many Power-over-Ethernet ports as it does IP phones, according to Giancarlo.

"People are buying POE ports in anticipation of having things to connect them to. They are building their networks believing IP Telephony is coming at some point in time," he said.

Ciscos routing business was also up 5 percent to $1.5 billion on the strength of orders for its Integrated Services Routers and its 7600 Series routers.

For its fourth fiscal quarter of 2006, Cisco expects to see revenue growth in the range of 10 to 12.5 percent, excluding contributions from its Scientific Atlanta acquisition, which closed in the third fiscal quarter.

With Scientific Atlanta Cisco expects to see revenue growth in the range of 18 to 21 percent to between $7.8 billion and $7.95 billion.

"There is strong business optimism among almost all the business leaders I talk to around the world. While were concerned about recent cautious outlooks [from Cisco competitors], our momentum and customer mindshare is clearly increasing on a global basis. Im even more optimistic than I was a quarter ago," said Chambers.

For the full fiscal 2006 year, Cisco expects to generate revenues of just over $28 billion, up 14 percent over fiscal 2005.

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