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Cisco revenues up 27 percent

The company's second-quarter earnings are up significantly, despite concern that the networking business is slowing down.

Boosted by strong sales in the SGI at a glance Americas and Europe as well as among Internet service providers, networking giant Cisco Systems (CSCO) today announced a 27 percent revenue jump in the second quarter.

Despite concern that the networking business is slowing down, Cisco was able to improve its operations.

"We believe there is a great deal of opportunity in the long term for the industry," said John Chambers, president and chief executive of Cisco, in the familiar refrain of the networking industry's most successful player.

Cisco specializes in equipment that interconnects groups of PCs, servers, and mainframe systems and allows a variety of different networking conduits to work with each other.

News of Cisco's strong performance comes despite continued fluctuations in Asia and fears that economies in that region will not recover soon from their current woes. Asia represented ten percent of Cisco's business for the quarter, down from the mid-teens this past year.

Executives said the firm showed continued growth in key markets like remote access, where Cisco finds itself in a pitched battle against competitors such as Ascend Communications and 3Com.

The company reported net profits of $457 million, or 43 cents a share, compared to $352 million or 34 cents a share a year ago. Analysts expected the company to post a profit of 42 cents a share for the second quarter, according to First Call.

Sales for the quarter reached $2 billion, up from $1.6 billion a year ago. For the quarter, Cisco collected $135 million in revenue from dial-up access products. Chambers said dial access was growing at around 20 percent quarter over quarter and nearly 100 percent year over year.

Surprisingly, Cisco also witnessed growth of 30 percent quarter over quarter in networking products for token ring layouts, a technology dominant in older IBM-based networks.

In other segments, Cisco saw quarter-to-quarter growth in the 20 percent range for its local area switches and a jump to $165 million in the quarter for their wide-area Cisco Stratacom counterparts. In addition, the quarter was highlighted by the first $100 million in sales for the BPX switching device.

In the emerging Gigabit Ethernet equipment market, Chambers admitted the company was "a little bit later" than he would like to be in introducing products, but he said Cisco should be in good shape to take advantage of the expected boom in that sector.

Cisco's former bread and butter--routers--continued to see tepid growth in the low single digits.

Its thriving online business accounted for 41 percent of all orders placed for the quarter, stretching out to a run-rate of $3.6 billion in annual sales via use of the company's Web site.

Despite news of the 32nd consecutive quarter of growth at Cisco and the overall rosy picture painted by the company, Chambers warned of "seasonal challenges" in the coming third quarter.

Executives also said the firm would be heavily investing in research and development to gain an edge in several emerging markets, with plans to hire up to 1,500 new employees over the next three to four months.

Meanwhile, Cisco's December acquisition of LightSpeed International for $160 million will count against next quarter's earnings by an 11- to 15-cent charge, according to executives.