Cisco shares gain ground after slide

The networking giant climbs into positive territory after losing ground on investor concern about its ability to sustain growth.

2 min read
Shares of Cisco Systems climbed into positive territory Tuesday after losing ground in early trading on investor concern about the company's ability to sustain its growth.

Cisco 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.

In midday trading, shares of Cisco rose $1.75, or about 3 percent, to $56.86 on volume of 65.9 million shares, the most active stock on the Nasdaq Stock Market. Earlier Tuesday the stock had fallen as low as $53; it closed Monday at $55.13.

In its Monday announcement, Cisco said it earned $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.

Stock price from November 1999 to present.  

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

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.

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 will be in the high single or low double digits. They also upped expectations for the company's fiscal year, saying revenue will grow between 50 percent and 60 percent for fiscal 2001.

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

On Tuesday, Sanford C. Bernstein analyst Paul Sagawa explained that Cisco's numbers suggest a slowing in its carrier business of sales to telecommunication companies. "In a sense, we've climbed the mountain with Cisco and now we're at the pinnacle looking down."

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 (Networks), 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.