Cisco beats estimates by a penny

Cisco Systems reported first-quarter earnings Monday that exceeded analyst expectations by 1 cent per share as sales jumped 66 percent. The networking giant also upped forecasts for its second quarter and 2001 fiscal year.

Cisco Stock price from November 1999 to present.

Source: Prophet Finance

Net earnings for the period were $1.36 billion, or 18 cents per share, on revenues of $6.52 billion. That's a 67 percent gain from earnings of $814 million, or 11 cents per share, on revenues of $3.92 billion during the same period last year.

Analysts expected Cisco to earn 17 cents per share, according to a survey by First Call/Thomson Financial.

At 1 p.m. PST, the close of regular trading, Cisco shares were down $1.63 to $55.13. The earnings report was issued after the close of regular trading. In after-hours trading, Cisco's stock rose slightly and then slipped to $54.38 as investors digested the company's performance and its guidance for future quarters.

In a conference call following the earnings announcement, Cisco executives raised the company's expectations for the second quarter of fiscal 2001, saying sequential revenue growth would be in the high single or low double digits. They also upped expectations for the company's fiscal year, saying revenue would grow between 50 percent and 60 percent for fiscal 2001.

Including charges related to $1.37 billion worth of acquisitions that closed in the quarter, Cisco reported earnings of $798 million, or 11 cents per share, for its fiscal 2001 first quarter. The company closed the acquisitions of Hynex, IPmobile, Komodo Technology, Netiverse and NuSpeed during the quarter.

Cisco chief executive John Chambers attributed the company's string of 11 quarters of successive revenue growth to continued strength across all of the company's businesses.

"It was a very strong quarter," Chambers said during the company's conference call. "This was especially fortunate given the many challenges some of our peers have experienced."

Cisco experienced 14 percent sequential growth in both earnings and revenue. The 2001 fiscal first quarter was the company's eighth straight quarter of sequential revenue growth.

Cisco executives said the company experienced 15 percent sequential sales growth in its service provider line of business, the unit that includes much of its high-end Internet equipment and optical technology. Sequential growth in the company's nascent optical equipment business was 40 percent, Chambers said.

Cisco's performance in this market is closely watched, since it is a relatively new player in a market that is extremely volatile as evidenced by the moves from several large companies in recent weeks, such as Sprint, AT&T, WorldCom and PSINet.

Analysts believe the fragile state capital expenditures among these network operators is not as bad as it seems. "We believe some investors have overplayed the capital spending issue for service providers," said financial analyst Kenneth Leon of ABN-AMRO in a recent report.

For the final three-month period of fiscal 2000, Cisco reported its strongest quarter in four years. But since then the telecommunications sector has been hit hard, in many cases sending the shares of equipment companies and the network operators they serve into a tailspin. Cisco shares are trading at about 33 percent below their 52-week high of $82.

Analysts also have been skeptical concerning Cisco's ability to sustain its high growth rate.

But Cisco executives maintain they are in numerous high-growth markets, allowing the company to absorb sales hits if one business comes up short in a particular quarter.

"We are in many different growth markets," Mike Volpi, Cisco's chief strategy officer, said in an interview following the company's earnings announcement. "If you look at Nortel, they have optical that's growing nicely and they have wireless that's growing nicely, and a bunch of things that are flat.

"The bumpiness gets (minimized) when you have 11 or 12 growth areas," Volpi said.

Competitor Nortel Networks' stock was pummeled recently following an earnings report that included lower-than-expected sales of optical equipment.

Bad loans to struggling start-up service providers is also an issue on the minds of investors, following disclosure by another competitor, Lucent Technologies, that the issue was affecting its quarterly sales.

Cisco addressed its own approach to providing capital to emerging telecommunications service providers, calling its loan practices "conservative," according to chief financial officer Larry Carter.

"We believe we are conservative and have mitigated our risk," he said.