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Cisco holds steady, eyes rebound

The networking giant hits Wall Street targets with net profit of $1.1 billion and hints that a general economic recovery is already in the works.

Cisco Systems reported first-quarter earnings that met analysts' expectations on Wednesday, and hinted that a general economic rebound is already in the works.

Net profit was $1.1 billion, or 15 cents per share, on net sales of $5.1 billion in the fiscal first quarter of 2004, ended Oct. 25. That compares with net profit of $982 million, or 14 cents per share, on net sales of $4.7 billion during Cisco's last financial quarter.

A survey of 36 First Call analysts had estimated earnings of 15 cents per share, a penny more than Cisco reported during its last financial quarter. First Call also projected $4.86 billion in sales, compared with the $4.85 billion in the same 2002 quarter.

Cisco CEO John Chambers said the San Jose, Calif.-based company saw "strength" in its switching and routing business. He also pointed to strong sales to telephone and broadband providers during the quarter. He called it a "solid" start for a new financial year.

Overall, Chambers said he had "increasing but still very cautious optimism," about an ongoing turnaround from a nearly three-year drop in business spending on information technology.

"Half of the chief executives I talk to say, 'There's some winds at their backs for first time in long time,'" Chambers told analysts. "The other half show me a wait-and-see attitude."

Cisco sells most of the world's switches and routers, which are used to direct traffic over a computer network. But Gartner analyst Rachna Ahlawat said demand for such basic networking equipment, especially in North America, is slowing as routers and switches become a business staple.

Cisco is leaning more heavily on selling Wi-Fi networking equipment, , Internet Protocol (IP) telephones, optical networking equipment, storage area networking and wireless gear--markets that it estimates could eventually be worth $1 billion.

Revenue from these new markets increased by about 15 percent when compared with sales in the last quarter, Chambers said during a conference call with analysts. First-quarter sales by Linksys, the Wi-Fi equipment maker Cisco purchased, were about $140 million. Cisco also shipped about 360,000 IP phones during the quarter, Chambers added.

The only disappointment in the quarter was Cisco's storage area networking (SAN) business, Chambers said, blaming the missed target on what he described as "manufacturing issues."