Cisco Reports Healthy Order Growth

The company says its earnings grew by 16 percent for its third fiscal quarter, but that its security endeavors brought disappointing results.

Cisco Systems on Tuesday afternoon reported a rise in both revenue and earnings for its third quarter of fiscal year 2005, ended April 30.

Cisco Systems Inc. generated 10 percent revenue increase of $6.2 billion, compared with $5.6 billion a year ago, and it earned $1.4 billion, or 21 cents a share, compared with $1.2 billion, or 17 cents a share, a year earlier. Those earnings represent a 16 percent growth rate.

"Q3 was a very solid quarter in a quarter that is seasonally challenged. Were even more pleased with order growth in Q3," said John Chambers, CEO of the San Jose, Calif., company. Chambers said orders grew by 2 percent over the previous quarter.

Saying that Cisco has achieved good balance in its business across geographies and customer segments as well as in product categories, Chambers was upbeat about the quarter, saying product bookings "got stronger throughout the quarter."

In geographies, the one disappointment was in Japan, which represented 6 percent of Ciscos business. "It is becoming a more challenging market from an economic and a market perspective," he said.

Among its advanced technologies, security was a disappointment. Cisco saw that orders in that market segment were flat from the previous quarter and grew "in the low teens" compared with year-ago results.

But among Ciscos advanced technologies—which include security, wireless, optical networking, storage networking, home networking and IP telephony—Chambers said Cisco expects uneven growth among the different groups. "Were not worried about it. Id be surprised if we dont bounce back next quarter," Chambers said.

Anticipation for movement to new security products introduced during the quarter also had an impact, said Charlie Giancarlo, chief technology officer at Cisco. "We saw seasonality coupled with several product transitions during the quarter. We saw a bit of a slowdown in anticipation of those transitions. Wed expect to see that come back in this quarter," he said.

Among the bright spots in Ciscos advanced technologies area, Cisco saw significant growth in IPT (IP telephony) and SANs (storage area networks). IP telephony saw 15 percent growth from the previous quarter, and it was up 35 percent over the year-ago quarter.

"IPT blew past the $1 billion run rate," Chamber said. "Our largest IPT competitor had legacy phone, service and IPT revenues about equal to our IPT revenue. We will soon become the largest provider of overall IPT, even when compared to competitor legacy solutions." Storage area networking, meanwhile, grew 70 percent year over year.

Cisco is also pursuing the next big growth opportunities beyond the six advanced technology areas it has already entered. Those include the data center, where Cisco believes it has an opportunity to pursue processors with integrated voice, video and data services, and in application-aware networking.

"Now that our customers are using more systems-oriented architectures and messages to share information among processors, people and applications, there is a much greater role the network can play in managing and optimizing that traffic—dealing with multivendor, multiprotocol environments," Giancarlo said. He would not elaborate on Ciscos developments.

Among the business highlights for the quarter, Cisco saw one of its fastest product-demand jumps with the shipment of its Integrated Services Router 3800 and 2800. Cisco also announced wireless for the entire ISR family, which saw the addition of new 1800 and 800 low-end offerings during the quarter.

On the acquisition front, Cisco during the quarter announced its plans to acquire Sipura Technology Inc. to bolster its VOIP (voice over IP) for consumer line with its Linksys unit, which shipped more than 1 million VOIP ports during the quarter. Cisco also announced its plans to acquire Topspin Communications Inc, which provides server fabric switches.

/zimages/2/28571.gifRead more here about Ciscos plans to buy Sipura.

For the fourth fiscal quarter of 2005, Cisco expects to generate revenue increases of 4 percent to 7 percent over the third quarter, with year-over-year revenue growth topping out between 9 percent and 11 percent for the quarter.

That revenue is expected to be about $6.45 to $6.6 billion. Revenues for the full fiscal 2005 year are expected to grow between 12 percent and 13 percent, reaching between $24.6 billion to $24.8 billion.

In response to its bullish outlook, Cisco intends to continue to add sales positions. Overall during the third quarter, Cisco added 1,100 jobs to its payroll.

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