Cisco Q1 2006 Profit, Revenue Surge

Cisco Systems kept growing fast in its fiscal first quarter, posting revenue of US$8.2 billion and net income of $1.6 billion or $0.26 per share.

Excluding certain items, the dominant networking vendor saw earnings per share of $0.31, beating the consensus estimate of $0.29 from analysts polled by Thomson Financial. The analysts had predicted Cisco’s revenue for the quarter, which ended Oct. 28, would be just under $7.9 billion.

As the San Jose, Calif., company expands from its core switching and routing business into new areas such as security, telephony and videoconferencing, it has hit the mark in many cases and promised strong profit growth over the remainder of this decade. Results for the first quarter didn’t disappoint, as revenue grew almost 25 percent and net income shot up 27.5 percent from the same quarter last year.

“Our momentum continues to be even stronger than it was a year ago,” said John Chambers, president and chief executive officer, on a conference call following the release of the results.

Cisco also predicted year-over-year revenue growth of 24 percent to 25 percent for the fiscal second quarter now in progress. If trends continue for the full 2007 fiscal year, annual revenue growth should come in at the upper end of Cisco’s standing prediction of 15 percent to 20 percent per year, said Dennis Powell, senior vice president and chief financial officer.

Order growth was balanced across almost all products and regions of the world, according to Chambers. Wireless LANs were the strongest of Cisco’s newer technologies, with orders growing more than 40 percent. And orders for the company’s flagship service-provider router, the CRS-1, increased more than 500 percent to about $150 million. The bigger router is designed for increasing network traffic. Carriers are in various stages of building out “quadruple play” offerings that include voice, video, data and mobile services, Chambers noted, but one driver of higher traffic stands out.

“There’s no doubt here that video is the killer application,” he said. That includes entertainment as well as enterprise uses of video, which Cisco aims to tap into with a high-end videoconferencing system it unveiled last month. Chambers said this type of “telepresence” technology could become a billion-dollar business for Cisco within three to five years.

Enterprises spent more in general during the quarter, partly because they have run out of ways to increase productivity by cutting costs, Chambers said. Cisco’s key advantage over competitors is that it has products in more categories and integrates those products well, he said. Enterprises are embracing Cisco’s view of the network as the platform for all kinds of computing and communications, Chambers said.

Cisco isn’t afraid of Microsoft’s impending entry into IP telephony, Chambers said in response to a question on the call.

“We’ve got a three-to-five-year lead in this marketplace,” Chambers said. He noted that although Microsoft will be a competitor in some cases, Cisco also cooperates with Microsoft in this area.

-Stephen Lawson, IDG News Service (San Francisco Bureau)

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• Microsoft Vista to Get VoIP

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