Cisco Reports Strong Third-Quarter Results

BOSTON (05/09/2000) - Cisco Systems Inc.'s strong third-quarter results announced today reflect the company's best year-on-year growth in three years as well as the networking equipment vendor's thirteenth consecutive quarter of growth, according to Cisco.

For the three-month period ended April 29, 2000, Cisco's net sales rose 55.1 percent compared with the same quarter a year earlier to US$4.92 billion, the company said in a statement issued today. Factoring in a variety of costs and charges, the vendor's operating income was $744 million, down 13.2 percent, and net income advanced 4.1 percent to $662 million.

Excluding one-time costs associated with research and development, taxes on stock options, acquisition-related costs and other similar charges, Cisco's operating income increased 49.3 percent to $1.31 billion and net income was 58.1 percent higher at $1.03 billion -- the first time that figure has passed the billion dollar mark.

"Given our size and the fact that the third quarter has historically been our most challenging quarter, we were very pleased with the growth we saw," said John Chambers, Cisco's chief executive officer and president, in a conference call this afternoon with reporters. Growth was seen across the company's product sectors and geographic markets, he added.

Routers continued to contribute the most to Cisco's sales representing 41 percent of all sales in the third quarter compared with 39 percent in the previous quarter. Revenue from switches was 39 percent was unchanged, that from access products rose to 13 percent up from 12 percent and revenue from all other products decreased to 7 percent down from 10 percent, Chambers said.

Sales into the enterprise sector led in terms of growth for the first time in a long time with quarter-on-quarter growth above 20 percent, Chambers said.

Shining stars were the company's Catalyst 6000 and 4000 products which saw growth of over 40 percent. In the service provider sector growth was in the high teens, he added.

Around the world, Cisco said it saw strong growth in many markets with Asia, excluding Japan, leading the way in terms of quarter-on-quarter growth of around 25 percent. Korea, India and Hong Kong led the growth in the region. In Japan, the company said it saw the first improvement in business for a few years with growth exceeding 20 percent, although capital expenditure at Japanese companies is still sluggish, Cisco executives noted.

Growth was even throughout all areas in the Americas and the U.K. led the Europe, Middle East and Africa (EMEA) region. Cisco said it was optimistic about potential from growth in the region on the back of continuing privatization and deregulation in the European telecommunications market.

Among causes for concern going forward are the increasingly competitive environment in which Cisco operates, Chambers said. "As expected, our toughest competition comes from the hundreds of startups and seemingly unlimited supply of venture capital to create competitors," he said. Chambers also noted that the level of competition is fierce not only in the networking market but also in the jobs market for the company's engineers.

Another worry for Cisco is an expected component shortage which may last for several years and is increasingly likely to hit the vendor as it relies on smaller startup companies for some components and increases sales and thus requires larger amounts of components, Chambers said.

Cisco Systems, in San Jose, California, can be reached at +1-408-526-4000, or via the Web at http://www.cisco.com/.

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