Cisco Systems reported undramatic earnings Tuesday -- and that was just fine with Wall Street.After Google, Yahoo and Intel soured the markets on tech stocks in recent weeks with disappointing earnings reports, analysts were generally relieved at upbeat projections from Cisco. ``We've had a pretty tough earnings season,'' said CIBC World Markets analyst Steve Kamman.
The San Jose Internet equipment maker's net profit dipped 1.8 percent over the same quarter in 2005 because of new federal accounting rules that consider stock options an expense. And its revenue rose only 9.3 percent, the lowest rate in two years. Yet analysts were encouraged by Cisco Chief Executive John Chambers' prediction of stronger growth, from 10 to 12 percent or greater, over the next two quarters. ``The momentum we are seeing in orders . . . makes us comfortable that we are winning,'' Chambers said in a conference call.
Cisco posted a 45 percent jump in sales of Internet phone service products for businesses, as well as double-digit increases in revenue from router and switcher sales, Cisco executives said in the call. The company posted net income of $1.38 billion, or 22 cents per share, and $6.6 billion in revenue, hitting analyst estimates. Cisco earned $1.4 billion in the second quarter of 2005, or 21 cents per share. Cisco's shares were up 1.5 percent Tuesday, closing at $18.09. Shares were up more than 5 percent in after-hours trading.
With many businesses expected to upgrade their network equipment this year with new features such as wireless Internet, advanced security and Internet phone service, continued growth is a safe bet, said analyst Erik Suppiger of Pacific Growth Equities.``I think for the last two years there has been a degree of saturation, and now there's some new technologies that should generate some uptake cycles,'' he said.
Chambers said the company's $6.9 billion acquisition of Scientific Atlanta in November would bring additional revenue of $250 million over the next quarter and possibly $525 million in the fourth quarter. The deal, which marks Cisco's entry into the competitive consumer entertainment market, is expected to be completed by late March or early April. Chambers noted, however, that the home-entertainment market represents only 5 percent of Cisco's business and may only marginally affect the company's profits.
Also Tuesday, Cisco joined Intel and several venture capital firms to invest in the new Walt Disney spinoff MovieBeam, a video-on-demand service, according to a recent regulatory filing with the Securities and Exchange Commission. Cisco's chief development officer, Charles Giancarlo, declined to discuss specific product plans for either the Scientific-Atlanta deal or the MovieBeam investment, nor would he comment on recent speculation of a potential purchase of digital video recording pioneer TiVo.
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