Cisco posts solid Q1 gains

Cisco Systems on Wednesday reported solid results for the first quarter of its 2006 fiscal year, saying business momentum is improving in the U.S. and the Asia-Pacific region.

The networking vendor had revenue of US$6.5 billion in the quarter, up about 10 percent from US$6 billion a year earlier. Earnings per share came to US$0.20 per share based on generally accepted accounting principles, including an expense for stock-based compensation that was not required a year earlier. On the same basis, net income for that earlier quarter would have been US$0.17 per share, according to a Cisco statement.

The San Jose, California, company matched analysts' consensus revenue forecasts, provided by Thomson First Call. It also roughly matched the analysts' estimate of earnings. Excluding the stock-based compensation charge of about US$0.04 per share, analysts expected US$0.24 per share, according to First Call.

For the second quarter, Cisco forecast revenue growth of 8 percent to 9 percent, though the company expects revenue to be flat or up only slightly compared with the previous quarter, executives said on a conference call following the results announcement.

In the first quarter, which ended Oct. 29, Cisco's switching and routing product lines both had order gains of at least 10 percent, while orders for its advanced technologies grew in the mid-teens. Strongest among those was storage, followed by IP telephony, the company said.

The commercial sector -- small and medium-sized businesses -- is Cisco's fastest-growing market, outpacing enterprises and service providers, according to the company.

Strong results in the U.S. and Canada and the Asia-Pacific region (which excludes Japan) offset surprisingly weak performance in Europe, President and Chief Executive Officer John Chambers said on the conference call.

"Asia-Pacific is kicking," Chambers said. Product orders grew about 30 percent overall in the region, with strong results in almost all large countries, he said. Cisco had its best quarter in China in two years and did even better in India. Chambers said India may one day be an even bigger market than China for Cisco. Last month the company announced it would invest US$1.1 billion in India over the next three years.

U.S. results were solid across the enterprise, service provider, commercial and Federal government sectors, Chambers said.

But European orders were flat compared with the year-earlier quarter, Chambers said.

"If Europe had been where we had expected it to be, it would have been one heck of a quarter," Chambers said. France, Germany, the U.K. and some other countries had weak results, he said. "Time will tell if it was a short-term blip or a ... longer-term challenge."

To maintain growth, Cisco continues to expand into new areas of technology. The California, company is investing in six advanced technologies today -- storage, security, IP telephony and communications, optical networks, wireless LANs and home networking -- and plans to add a new one every three or four months this fiscal year, Chambers said. It will introduce two before the end of this calendar year, he added.

Its security and IP telephony businesses each have reached Cisco's goal of US$1 billion in annual revenue, and wireless LANs and home networking are close to it, said Charles Giancarlo, senior vice president and chief development officer, in an interview following the earnings announcement. However, optical orders have fallen significantly in recent quarters. The optical equipment market was hit hard by the telecom crash early in this decade.

"We've been pleased, in general, with our overall performance in that area compared with the competition, but ... the overall segment is under-performing," Giancarlo said. As a result, Cisco now plans to tie optical technology more closely to its core products through product integration, he said.

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