Golden goose Cisco lifts investors' spirits

Investors pushed Cisco Systems Inc. (Nasdaq: CSCO) shares up 5 1/4 to 117 1/8 Wednesday after the network-equipment giant posted better-than-expected earnings in its third quarter and approved another 2-for-1 stock split.

On Wednesday, Sutro & Co. raised its rating from "outperform" to "buy" while Gruntal & Co. upped it from a "hold" recommendation to a "buy."

In the quarter, Cisco earned $646 million, or 38 cents a share, on sales of $3.15 billion.

First Call consensus expected the San Jose, Calif. company to earn 37 cents a share in the quarter.

The 2-for-1 stock, payable to shareholders of record on May 24, marks the company's eighth split in its nine years as a publicly traded company.

The $3.15 billion in sales represents a 44 percent jump versus the year-ago quarter when it recorded sales of $2.18 billion.

Believe it or not, some analysts were worried Cisco would fall short of the estimate, citing integration problems from the slew of companies it's acquired in the past three months as well as a lagging ATM product line.

But Cisco CEO John Chambers dismissed those skeptics during Tuesday's conference call.

While Wall Street wonders what broadband technology --DSL or cable -- defines the broadband world, it might be easier to just invest in Cisco. The company ditched its typical "healthy paranoia" and gave a relatively bullish outlook.

Cisco officials had a smug answer when asked how they saw the broadband market shaping up given AT&T Corp.'s (NYSE: T) acquisition of MediaOne (NYSE: UMG) and the advance of digital subscriber line service.

"We think they are on equal footing, it's a jump ball between DSL and cable," Chambers said. "We don't think one architecture has an advantage over the other."

Put simply, Cisco doesn't care which technology wins. Cisco will benefit no matter what broadband technology wins because its networking gear will be used to build the next generation networks.

Cisco said it sees broadband sales -- equipment for DSL and cable deployments combined -- growing to a $500 million run rate by the fourth quarter with the market growing 100 percent a year. Cisco is working on voice-over-cable trials, which will "open up a whole new ball game."

AT&T can bet on cable and AOL can bet on DSL and satellite.

Either way, Cisco will cash in because the existing networks aren't up to snuff.

Cisco plans to hire as many as 2,000 new employees in the fourth quarter and that doesn't include the 650 workers the company will pick up via acquisitions. Cisco continues to dominate the router market.

Sales to telecommunications carriers topped $1 billion for the first time. Cisco's sales to telcos are soaring, but the company is hardly a gorilla compared to more established equipment vendors such as Lucent (NYSE: LU), which acquired Ascend, and Nortel Networks (NYSE: NT). Cisco has $8.5 billion in cash and is generating nearly $300 million in cash a month.

Thirty of the 31 analysts following the stock rate it a "buy" or "strong buy."

In October, Cisco shares hit a 52-week low of 41 1/8.

Larry Dignan contributed to this report.