Cisco Posts Revenue, Profit Gains for Q3

Cisco Systems’ revenue in its fiscal third quarter was US$7.3 billion, up from $6.2 billion in last year’s third quarter, as the company’s business grew in the U.S. and emerging markets, Cisco reported Tuesday.

Net income was $1.4 billion or $0.22 per share, including a stock-based compensation expense that the company did not include last year. With that expense applied to the results from a year earlier, Cisco would have reported net income of $1.2 billion or $0.18 per share, the company said.

Not using generally accepted accounting principles, Cisco’s net income was $1.8 billion or $0.29 per share, beating the consensus estimate of $0.26 per share from analysts polled by Thomson Financial. The company also surpassed the consensus estimate for revenue of $7.17 billion.

During the quarter, which ended April 29, Cisco closed its acquisition of video infrastructure vendor Scientific-Atlanta, which contributed $407 million in net sales.

For its fourth quarter, Cisco expects product orders to increase between 10 percent and 12.5 percent for its traditional business. Including Scientific-Atlanta, it expects revenue to be 18 percent to 21 percent higher when compared to the previous year’s results for Cisco alone.

The third-quarter results were driven strongly by growth in the United States and Canada, which together make up 52 percent of Cisco’s business, President and CEO John Chambers said in a conference call following the results. Product orders grew about 20 percent, year over year, for the second consecutive quarter, he said. The growth occurred across the enterprise, commercial and service provider market segments, he said. Chambers told analysts he is more optimistic now than after the previous quarter.

Percentage growth for enterprise orders worldwide was in the low teens, commercial orders in the 20s and service provider orders in the high teens, Chambers said. Growth of about 5 percent in the company’s routing business was driven by the strength of its Integrated Services Router for small and medium businesses and branch offices, as well as its 7600 Series routers. Strong sales of the Catalyst 6500 platform helped drive 13 percent switching revenue growth. Enterprise IP communications, which includes IP phones and related products, grew about 40 percent, while Cisco sold its 8 millionth phone during the quarter.

Results in some emerging countries showed major growth, as product orders in the Middle East and Africa increased about 70 percent. Russia, Latin America and India showed order increases of about 40 percent. But China remained relatively flat, Western Europe had less than 10 percent order growth, and Japan continued to be weak, though it may have bottomed out, Chambers said.

Cisco is optimistic about growth in two emerging technology areas where it has made big investments. Enterprises are buying power-over-Ethernet ports, which can power IP phones and other devices, at about five times the rate they are ordering actual handsets, according to Charles Giancarlo, senior vice president and chief development officer. That indicates they are readying their networks for future deployments of IP telephony and other advanced technologies, he said. And with deals to provide video gear to BT Group and Deutsche Telekom, Giancarlo expects to see initial commercial deployments of carrier video services to consumers in Cisco’s next fiscal year, beginning in August, and a significant revenue stream to Cisco from this technology in the following fiscal year.

-Stephen Lawson, IDG News Service

For related news coverage, read Cisco CEO Chambers Pushes Collaboration, Video.

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