Network management Toolkit

Cisco's results flag tech turnaround

Marguerite Reardon CNET News.com

Published: 04 Feb 2004 10:25 GMT

Cisco Systems' second-quarter earnings inched past Wall Street targets on Tuesday, suggesting that a technology turnaround is under way, even though the company's chief executive officer said customers may still be cautious about spending.

The networking giant attributed its strong quarter largely to healthy sales in its business of supplying gear to data and voice service providers, and to momentum in new product areas such as storage, security and wireless.

For the fiscal second quarter, ended 24 January, Cisco posted a profit of $1.29bn (£0.7bn), or 18 cents a share, before an accounting charge -- a penny ahead of Wall Street analyst estimates. That profit total compares with $991m, or 14 cents a share, a year earlier. After the accounting charge, the last quarter earnings were $724m, or 10 cents a share.

Revenue rose to $5.4bn from $4.7bn in the same period a year ago, again ahead of estimates.

"For the first time in a long time, I believe the external factors are more positive," Cisco chief executive John Chambers said during a conference call. "In Q1 (the first quarter) it was a minority view. Now the majority of our customers are cautiously optimistic."

Chambers said the company continued to see strength in its core switching and routing business. For the second quarter in a row, sales of its GSR 12000 router, a product used by service providers to shunt traffic across the Internet, were strong. The increase in sales in this category coincides with positive earnings from Juniper Networks, Cisco's main routing competitor, which also saw a rise in routing revenue.

Cisco also reported positive momentum in its advanced technology group, which grew to account for 15 percent of the company's overall revenue. Storage, which had been weak in the first quarter, took in $40m in sales -- a leap of 120 percent, compared with that period. Security bookings came in at about $250m, making it the first product category in the advanced technology group that looks likely to achieve $1bn in revenue for the year.

Consumer and wireless sales also grew, according to Cisco. Internet telephony sales declined during the quarter, but the company expects them to rebound in the third fiscal quarter.

Cisco's strength in the data and voice service provider market echoes what other companies have reported during the quarter. Juniper chief executive Scott Kriens said at the time of the company's last earnings report that he expected the increased demand for Internet Protocol (IP) routing to also benefit Cisco. Lucent Technologies, Nortel Networks and other competitors also reported strong quarters.

Much of the service provider spending Cisco saw in the previous quarter came from international carriers, which are spending more of their budgets on IP products, according to Chambers. North American carriers are also spending on IP. Last week, Verizon Communications said it plans to spend a significant amount of its 2004 budget on IP and multiprotocol label switching (MPLS) gear as well as on voice over IP (VoIP) equipment.

While the data and voice service provider market, which makes up 25 percent of the company's total revenue, was strong, Chambers also said that spending from large corporations and small and medium-sized businesses, which make up the other 75 percent of sales, is still not at the level he would like to see.

"Today's economy has gone from a 'show me' economy to a 'how strong and how long will it last?' economy," Chambers said during the conference call. "chief executives are still more cautious than I would expect in this stage of the recovery in their spending and hiring."

For the third quarter of fiscal 2004, the company said it expects revenue to increase by 1 percent to 3 percent sequentially.