Cisco Q2 earnings beat estimates

Cisco Systems had net income of US$660 million in the second quarter of fiscal 2002, on revenue of $4.8 billion, the company said in a statement Wednesday.

The profit, which translated into earnings of $0.09 per share, exceeded analysts' expectations for the quarter, which ended Jan. 26. Analysts polled by Thomson Financial/First Call had estimated Cisco would post earnings of $0.05 per share for the quarter, on revenue of about $4.5 billion.

Cisco is making progress in its initiatives to reduce expenses and has gained market share in some key product segments, including core routing, Cisco President and Chief Executive Officer (CEO) John Chambers said during a conference call with financial analysts Wednesday.

However, Chambers declined to predict when the beleaguered telecommunication industry, which purchases much of Cisco's equipment, would turn around.

"Our visibility is still very limited ... because our customers' visibility for their own revenues also remains limited," Chambers said.

The weak economy in the U.S. also is constraining enterprise sales, he added.

However, for its current fiscal quarter, Cisco executives predicted sales would be either flat or up a few percentage points from the second quarter.

The company's revenue for the quarter was up 8 percent from $4.4 billion in the previous quarter, but down 29 percent from $6.7 billion a year earlier.

Cisco's net income of $660 million improves on a net loss of $268 million, or $0.04, in the immediate prior quarter. A year earlier, the company posted net income of $874 million or $0.12 per share.

Pro forma net income, which excludes acquisition charges, excess inventory benefits, net results on investments and payroll tax on stock option exercises, was $664 million. Pro forma earnings per share came out the same as actual earnings, at $0.09 per share.

Sales increased sequentially in the quarter in most European and Latin American countries, as well as Canada, the company said. In Japan, both government and enterprises continued to invest in network infrastructure amid economic woes, though sales remained flat. However, most other countries in the Asia-Pacific region were hurt by fallout from the U.S. recession.

Even China, where network investment has been aggressive in the past few years, saw slower sales. Chambers attributed this mostly to a reorganization occurring in China's telecommunication industry.

Although many enterprises in the U.S. are suffering from the weak economy, once the economy begins to rebound they will resume investments in network gear even faster than they will rebuild staff, Chambers said.

"As they start to see things improve, they're going to spend money," Chambers said.

In the long term, converged voice and data networks and voice over IP (Internet Protocol) will be major drivers for investment in both enterprise and service-provider networks worldwide, Chambers said.

The ongoing consolidation in the service-provider business ultimately will help Cisco as it builds stronger relationships with incumbent carriers, Chambers said, but he sounded a note of caution.

"We continue to balance this calm confidence with a healthy paranoia," he said.

Although Cisco has "overachieved" in its initiative to improve productivity, according to Chambers, there is still work to do, he added. Cisco's workforce had a net reduction of 760 employees over the quarter, to a total 36,786 at the end of the period, executives said. Jobs being eliminated through attrition are not being replaced, Carter said.

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