Cisco dips as investors hoped for split

Shares of the data networking giant edge lower despite yesterday's earnings announcement as investors had anticipated news of a stock split from Cisco.

Shares of data networking giant Cisco Systems edged lower today despite yesterday's announcement that the company beat estimates for its second quarter by a cent on a 40-percent increase in sales.

Cisco stock dipped 1.13 percent to 111.125, and has traded as high as 117.5 and as low as 40 during the past 52 weeks. Analysts attributed today's decline to an anticipated stock split that failed to materialize with the earnings news.

"The stock had been up in anticipation of a stock split and when the split didn't come it fell a little," said Bert Hochfeld, an analyst at Josephthal & Company.

Cisco posted earnings of $606 million, or 36 cents per share, on sales of $2.83 billion for the quarter, excluding one-time charges related to a series of acquisitions.

A consensus of analysts polled by First Call had pegged Cisco's quarterly earnings at 35 cents per share.

The jump in Cisco's profits was due largely to 50 percent growth in sales to various service providers, according to company executives, making up for a slower-than-usual quarter for the company's corporate business.

Cisco's performance excludes one-time charges related to the closing of four acquisitions worth a total of $537 million during the quarter. The company recorded a charge of $349 million, or 19 cents per share. Including the acquisition-related charges, the company earned $288 million, or 17 cents per share.

"We are successfully executing on virtually every element of our long-term strategy," said John Chambers, Cisco's chief executive.

Cisco snapped up PipeLinks, Summa Four, Selsius Systems, and Clarity Wireless, continuing the company's tendency to fuel its internal technology development with a steady sprinkling of acquisitions.

The latest numbers compare with earnings of $457 million, or 29 cents a share, on sales of $2.02 billion for the same period a year ago.

Cisco executives said the quarter represented the best in the company's history, in terms of delivery of new products to the market. Chambers counted 13 major new releases as part of the push. "The game is now the fast versus the slow," he said.

Increasingly Cisco finds itself competing in the high-growth carrier and service provider segment of the networking industry, viewed as the largest market opportunity going forward. Amid growing competitors like Lucent Technologies, Nortel Networks, and European giant Alcatel, among others, the data leader is in the unusual position of being relatively small, despite a revenue run-rate of more than $10 billion annually.

But Cisco is counting on a rapid conversion to network infrastructures for carrying data, voice, and video transmissions based on Internet technologies--a company strength and a key profit driver going forward.

Many carriers and service providers are currently making network upgrade and expansion decisions, and a beneficiary of this spending boom is expected to be the data networking companies that can offer an infrastructure based on Internet standards and reliable multimedia delivery tools.

Lucent's recent acquisition of data player Ascend Communications is a perfect example of the market trend, and a purchase that is expected to up the ante in the ongoing networking market wars.

During a quarterly conference call today, Cisco executives also addressed several issues, including:

  • Internal adoption of data-based technology that will replace the company's ongoing reliance on PBX voice-switching hardware. Chambers said the company is in the midst of a pilot program with the intention that PBX will be eradicated from the firms' San Jose, California, headquarters by the first quarter of next year. The company's recent Selsius acquisition is expected to provide much of the technology necessary for replacing a PBX.

  • The Asian crisis, which Chambers said may have "bottomed out" in several parts of the region. The state of several economies in Asia have been a source of concern in the networking sector, at one point touching off a series of precipitous drops in networking companies' stocks.

  • The corporate market in North America, in which the company experienced "more challenges" than it would have liked, according to Chambers, with pricing pressure continuing in the cut-throat market for local switching devices.

    CNET News.com's Sandeep Junnarkar contributed to this report.

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