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Video stars in Cisco's earnings boost

Cisco Systems' profits jump 40 percent as cable and phone companies upgraded networks to carry more video services.

Demand from cable operators and phone companies upgrading and building new networks to carry video is fueling growth for Cisco Systems, the world's largest supplier of equipment that shuttles bits around the Internet.

Executives said Tuesday that Cisco's profits jumped 40 percent and revenue was up 27 percent during the company's second fiscal second quarter, which ended January 27, compared with the same period a year ago. Much of the growth can be attributed to strong sales to service-provider customers such as cable operators and phone companies.

Cable operators have been upgrading their networks to deliver high-definition TV and video-on-demand services. And telephone companies such as AT&T have also been buying gear to upgrade their networks to deliver TV over their networks.

"I never said there was a killer application until I talked about video," John Chambers, chief executive officer of the company, said during a conference call with analysts and investors.

This demand helped Cisco increase revenue 18 percent on its IP routing equipment and 13 percent on its Ethernet switching gear. But it was growth from Cisco's 2006 acquisition of set-top box maker and cable infrastructure provider Scientific-Atlanta that was the star of the quarter.

Scientific-Atlanta grew well above 20 percent compared with the previous year and contributed $639 million in revenues during the quarter. Executives said the next quarter looks just as promising.

"It doesn't get any stronger than the momentum at Scientific-Atlanta," Chambers said. "This is the best pipeline I've seen."

Scientific-Atlanta is probably best known for its set-top boxes, but the company also has a strong line of cable infrastructure products. Demand for this equipment skyrocketed, growing 50 percent compared with last year, Charles Giancarlo, Cisco's chief development officer, said during an interview after the earnings call.

Giancarlo also said Cisco has been anticipating increased bandwidth demand created from more video on the network for the past four or five years. But the company had expected it to happen a little sooner than it has.

"Video creates a lot of bits on the network," he said. "So we knew it was coming. The one thing we may get wrong is the timing. But what's important is that we get into the business and are prepared for it when it does happen."