Cisco posts profit, revenue growth in Q2

Architecture of tightly coupled products gaining in popularity

Cisco Systems Inc. on Tuesday reported gains in both earnings and revenue for the second quarter of its fiscal year 2006, citing growing adoption of converged voice, video and data networks.

Revenue hit US$6.6 billion, a gain of 9.3 percent over the second quarter of fiscal 2005, the San Jose, California, company reported. Net income rose to $1.4 billion from $1.1 billion a year earlier, with earnings per share coming in at $0.22, up from $0.17 in last year's fiscal second quarter.

Excluding certain items, the network vendor's earnings per share were $0.26 for the quarter ended Jan. 28, meeting the consensus forecast of analysts polled by Thomson Financial. Revenue also met the consensus expectations.

Cisco's prediction that customers would seek an overall architecture of tightly coupled products has been proven out, President and Chief Executive Officer John Chambers said. Among the high points of the quarter, enterprise product orders grew at nearly 20 percent worldwide from a year earlier and general U.S. results were strong, with order growth of about 20 percent, he said.

The company also rebounded in China, with strong order growth after a year of flat results, executives said. Emerging markets were a strong area overall, with sales in Russia also improving. But orders were down slightly in the U.K. compared with last year, partly due soft enterprise results and uneven sales to large customers such as BT Group PLC. Like router rival Juniper Networks Inc., Cisco also reported stagnation in Japan due to a lull before carriers' migration to the next generation of networks, expected in 18 months to two years, Chambers said. Last month, Juniper's forecast for its next quarter fell short of analysts' expectations.

Cisco is not immune to forces that affect its competitors, but it continues to see steady growth, executives said. For the current quarter, Cisco's third, they forecast revenue growth of between 10 percent and 12 percent compared with the year-earlier quarter.

Cisco is working on gaining a foothold in a variety of "advanced technologies," including IP communications, home networking, wireless, storage area networking and security. Products in these advanced technologies showed strong order gains except in one category, optical networking, which continued to shrink after weak results last quarter.

The optical networking industry as a whole has declined since the bursting of the telecommunications bubble early in the decade. That category will be eliminated and its technology integrated into Cisco's switching and routing products, the company said.

During the quarter, Cisco also entered two new technology areas: hosted small-business systems and application networking services.

IP Communications, which includes multimedia network gear such as IP phones, had order growth of more than 45 percent over the year-earlier quarter, Chambers said.

The company expects its acquisition of Scientific-Atlanta Inc. to go through in the middle of the current quarter. That deal will bring Cisco into the TV set-top box market and launch a new advanced technology category for the company, digital video. Charges related to the acquisition are expected to slash third-quarter earnings per share by $0.03 to $0.07, the company said.

Cisco's work force shared in the company's good fortune during the quarter with the company's first overall salary increase in about four years, Chambers said. The company's net head count grew by 403 in the quarter and by 3,075 from a year earlier, to 39,665.

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