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Cisco optimistically looks to the future

Cisco has raised its revenue forecast and is predicting a huge wave of growth as the Internet enters its next phase of development.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
4 min read

Cisco Systems' CEO John Chambers said the networking equipment maker is poised to see meteoric growth over the next several years as the Internet enters a new phase.

Like a fortune teller gazing into a crystal ball, Chambers told investors and analysts on the company's fourth quarter earnings conference call for fiscal 2007 that he believes the Internet is about to hit its next wave, which he expects will catapult Cisco's growth to levels it hasn't seen since the early Internet boom of the 1990s.

"The second phase of the Internet will enable collaboration that will dramatically improve productivity," he said. "And it has the opportunity to be an instant replay of what happened for Cisco in the early 1990s, powering our growth for at least a decade."

Cisco generated $1.93 billion in its fourth quarter in fiscal 2007, which ended on July 28th. This was up from a year ago when Cisco generated $1.54 billion in revenue. As for the entire year, Cisco's revenue grew 18 percent to $9.43 billion from $7.98 billion last year. Analysts had been expecting revenue around $9.3 billion.

This growth was largely due to strong sales of Cisco's traditional routing and switching products. But in the future, Chambers said the company sees even more growth on the horizon through emerging businesses focused on collaboration, such as Teleresence, a video conferencing system that actually makes people feel like they are in the same room with people via video, and unified communications, which allows workers to tie together several communications tools.

Cisco's optimistic vision for the future spurred executives to finally raise the company's long-term revenue growth expectations to between 12 percent and 17 percent. Chambers said that growth should be around 16 percent in the first quarter of fiscal 2008. For the entire fiscal year 2008, he told investors to expect between $9.45 billion to $9.55 billion in revenue or 13 percent to 17 percent growth. The previous growth range had been between 10 percent and 15 percent.

"Our momentum is even stronger than it was a year ago," Chambers said. This coupled with the company's consistent growth for the past 16 quarters helped prompt the management team to lift guidance.

Still, at least one analyst, Tal Liani of Merril Lynch wasn't satisfied. He said on the conference call that by his calculations, Cisco could raise guidance even more.

In some ways I have to agree with Liani. Listening to Chambers' talk you'd think he was an evangelical minister talking about the potential for collaboration technologies to deliver Cisco and its followers to the financial promise land. But despite the rhetoric, the company is still being cautious.

That said, I don't think I'd bet against Chambers' prediction for where the industry is headed or the potential for big growth in the long term. The company certainly hit the jackpot during the first Internet boom, and it deftly navigated the downturn, maintaining a strong solid business while looking for new opportunities.

I also think Chambers' predictions for huge growth over the next several years make sense. In the business community, where Cisco has always had a strong foothold, more and more people are using tools like instant messaging and video conferencing to collaborate with colleagues down the hall or across the world. Even consumers are using Web 2.0 technology to stay connected via voice over IP and messaging platforms like Skype or through social-networking sites like Facebook.

Cisco not only hopes to provide some of the tools to make this collaboration a reality, but the company also sells the underlying infrastructure that makes all this Net activity possible. And already Cisco is seeing huge growth. For example, it saw growth approaching 30 percent for equipment sold to phone companies and cable operators upgrading their networks to deliver new collaborative and interactive services.

Video will be the killer application that will drive this growth. Chambers highlighted the company's Telepresence product as an example. This ultra high-end video conferencing system, which comes complete with a specially built room, has been sold to some 50 customers with about 110 Telepresence centers around the world. Chambers said about 60 to 70 percent of the customers have also upgraded their switching infrastructure, compounding the positive results for Cisco.

Cisco is taking the lead in pioneering the use of new Internet technologies, showing customers what can be possible, Chambers said.

"We expect to do with Web 2.0 technology what we did with Internet," he said. "The Internet had been around for years, and we took it and used it to transform our own business to improve productivity. We'll do the same thing with collaboration technology."