Cisco's Earnings Soothe Wall Street

Cisco Systems eased Wall Street's worries of slowing growth by posting solid first-quarter results and projecting faster growth for next year than analysts had expected.

The networking market leader said in a conference call following the earnings announcement that, just as Wall Street feared, many of a new crop of young long-distance companies -- called Competitive Long-distance Exchange Carriers, or CLECs -- have cut back on their spending for new equipment. The company added, however, that the corporate market for networking equipment is exploding and that Cisco remains a primary beneficiary.

For the quarter ended in October, Cisco's sales rose a strong 66 percent to $US6.52 billion, compared with $US3.92 billion reported for the same quarter last year. Analysts had expected $US6.3 billion.

For fiscal 2001, Cisco CFO Larry Carter says he expects revenues to increase 50 percent to 60 percent over those posted for fiscal 2000. Such a dramatic rise would lead to earnings of 2 cents to 5 cents above the 72 cent to 75 cent consensus estimate that analysts have for next year, Carter said during the conference call.

For the first quarter, Cisco posted earnings of 18 cents a share, up from 11 cents a year ago. Analysts had been looking for 17 cents.

Also in Monday's conference call, chief executive John Chambers acknowledged that the new equipment spending slowdown has hurt Cisco's broadband products, such as its digital subscriber line equipment, which provides high-speed Internet connections for homes and businesses. He said, however, that he expects rebounding growth in the telecommunications industry in the second quarter, fueled by sales abroad, where network infrastructures are less developed than in the U.S.

During the first quarter, Cisco's sales to service providers, or telecom companies, were up slightly more than 15 percent, while the company's orders grew at a "single-digit" pace.

Chambers said, however, that sales to corporations should continue growing rapidly. Corporate customers are building out their Internet, internal and long-distance networks, a trend reflected in the fact that revenues from Cisco's corporate business were up more than 20 percent from the fourth quarter.

Sales of optical equipment also continue their expansion, Cisco said Monday.

Despite posting its 11th-straight quarter of accelerating revenue growth, Cisco saw investors take the company's stock on an after-hours roller-coaster ride. When Cisco executives said on the conference call that telecommunications spending was weak, shares slumped about $US4. Then, after the company said earnings next year should exceed Wall Street's expectations, the stock recovered most of the ground it had just lost, ultimately slipping only 19 cents in after-hours trading to $US56.31. The shares likely will climb Tuesday.

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