Cisco 3Q Profit Surges 34 Percent

Cisco Systems Inc.'s fiscal third-quarter profit surged 34 percent as widespread networking upgrades and consumers' thirst for more bandwidth continued to fuel the company's robust growth.

The company narrowly beat Wall Street's expectations. However, the report disappointed investors hoping for more from the tech bellwether. Cisco's stock, which had climbed 8 percent in the last month, plunged in after-hours trading.

Cisco said Tuesday that net income for the three months ended April 28 was $1.87 billion, or 30 cents per share, compared with $1.4 billion, or 22 cents per share, during the same period last year.

Excluding one-time charges, San Jose-based Cisco earned 34 cents a share, a penny higher than analysts surveyed by Thomson Financial were expecting.

Cisco, the world's largest provider of the routers and switches for directing data traffic over computer networks, rang up $8.87 in billion in sales during the quarter, including a $752 million boost from cable television box seller Scientific-Atlanta Inc.

Revenue grew 21 percent over last year and topped the $8.76 billion that analysts were expecting.

Management is bullish that the appetite for its networking gear will continue to drive long-term growth as more tools are needed to manage booming Internet traffic.

"We are more optimistic about our expectations than we've been for some time," Dennis Powell, Cisco's chief financial officer, told The Associated Press. "And we believe that we're going to continue to see solid growth on a global basis. We believe we're beginning to see our strategy pay off of the network becoming the platform for all of communications."

Cisco has profited from hearty demand for its products as more people come online worldwide and bandwidth-intensive multimedia downloads suck up more network capacity.

However, some financial analysts have expressed fears about Cisco's ability to maintain its rapid expansion.

While sales in most segments are growing in the double digits, a sudden slowdown in a key area of Cisco's business -- orders from U.S. businesses -- has spooked investors.

Cisco's U.S. enterprise segment grew 20 percent in the first three months of the fiscal year but has since contracted to mid-single digit growth.

Investors are unsure whether the sluggishness portends a looming deceleration in other markets or an isolated downturn. Cisco counters that the segment comprises just 13 percent of overall revenues, dwarfed by faster-growing foreign markets that make up more than half of the company's business.

"Today we truly are a global company operating in a global economy," Powell said.

John Slack, equity analyst with Morningstar Inc., said Cisco posted a solid quarter and has enough breadth to offset weakness in one area with expansion in others. He said the stock fell victim Tuesday to overeager investors who have run up the stock price and expected higher guidance.

"These guys continue to execute, execute, execute," Slack said. "But this is a case where Wall Street's expectations had been running up in the past few weeks. It's a typical sell on the news thing. I don't expect much downside from here."

Cisco is expecting sales to grow 15 percent to 16 percent in the fourth quarter to $9.2 billion to $9.3 billion. That's slightly lower than the $9.33 billion anticipated by analysts, but above the high end of the company's own long-term growth targets.

The company is expecting gross margins to remain flat at about 64.5 percent in the current quarter.

Cisco shares finished regular-session trading up 55 cents, or nearly 2 percent, to $28.36. In after-hours trading, the stock fell more than 5 percent.


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