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Cisco up despite networking woes

The networking giant posts a 33 percent increase in third-quarter revenue and net profits while the sector sees tough times.

Cisco Systems today posted a 33 percent increase in third-quarter revenue and increased net profits, excluding one-time charges, as the networking sector continues to see tough times.

The networking giant cited improved growth in Europe and the Americas as the main factor in its strong third-quarter performance.

Revenues for the quarter ending April 25 rose to $2.2 billion, up from $1.65 billion a year ago. Net income was $65 million, or 6 cents a share, compared with profits of $378 million, or 37 cents a share, for the same period a year ago. Excluding acquisition related charges, Cisco's net profits for the quarter would have been $483 million, or 45 cents a share.

That still slightly beat analysts' estimates of profits of 44 cents a share, according to First Call.

Cisco also benefited this quarter from lower component prices and better cost control of its expenses, analysts said.

"Cisco stands out relative to the performance of any of the other networking companies in recent quarters," said Stephen Dube, an analyst with Wasserstein Perella Securities. "I don't know of any of the larger ones that have grown like this."

Last month, Bay Networks reported weak third-quarter performance that fell short of analysts' revised expectations--coming in with a more than 50 percent drop in profits. In March, 3Com also disappointed Wall Street, citing pricing pressure that had cut into its gross margins.

Cisco, for its part, has managed to pull ahead of the pack with its competitive product line and its ability to execute well on its business strategy, Dube added. The company also has been able to deftly and quickly meld its acquisitions into its corporate structure, he noted.

During the quarter, Cisco completed acquisitions of four companies. It purchased voice-signaling translation technology company LightSpeed International in a $160 million stock deal; Internet security company WheelGroup for $124 million in stock; and NetSpeed, an Internet access and data transmission provider, in a stock-swap deal valued at $236 million. Cisco also closed a deal on multimedia networking application company Precept Software for $84 million in stock.

In addition, Cisco entered an agreement yesterday to buy software maker Class Data Systems in a stock deal valued at $50 million. Class Data makes software that allows users to classify and prioritize network data traffic. The deal is expected to close next month, and Cisco will take a charge of between 2 cents and 4 cents a share in the fourth quarter as a result.

Although Cisco's performance was strong in Europe and the Americas, the company has been hindered somewhat by Asian economic turmoil.

"The major concerns for them, or anyone else, is the international economic environment in Asia," Dube said.

Nevertheless, Dube expects Cisco to see revenue growth of more than 30 percent for the year and a similar performance in 1999.