In a widely anticipated announcement, Cisco Systems Inc. reported its fiscal 2001 fourth quarter and year-end results, meeting expectations but providing little insight into which direction the industry is headed.

Cisco did say, however, that it expects revenues for Q1 2002 to be flat to down 5 percent from Q4 2001, and that the industry may not have bottomed out yet.

"No one really knows when the economoy or capital spending will bottom out," said Cisco CEO John Chambers, adding that it may occur over the next two quarters. "It may get worse before it gets better."

With that, Chambers said Cisco's fourth quarter results were "mixed." Net sales for Q4 2001 fell 25 percent to US$4.3 billion from $5.7 billion in Q4 2000, and dropped 9 percent sequentially from Q3 2001. Q4 pro forma net income was $163 million or $0.02 per share, compared with pro forma net income of $1.2 billion or $0.16 per share for the same period last year, a decrease of 86 percent and 87 percent, respectively.

Actual net income was $7 million or $0.00 per share, compared with actual net income of $796 million or $0.11 per share for Q4 2000.

For the 2001 fiscal year, net sales increased 18 percent to $22.29 billion, compared with $18.93 billion for fiscal 2000. Pro forma net income was $3.09 billion or $0.41 per share for fiscal 2001, compared with pro forma net income of $3.91 billion or $0.53 per share for fiscal 2000, a decrease of 21 percent and 23 percent, respectively.

Actual net loss for fiscal 2001 was $1.01 billion or $0.14 per share, compared with actual net income of $2.67 billion or $0.36 per share for fiscal 2000.

Chambers said the fiscal year was like two different years, with growth in excess of 60 percent year-over-year in the first half, and then the unexpected precipitous dropoff in the second half.

Cisco's enterprise business met the company's expectations, with orders up slightly from Q3. Chambers said the enterprise business was "close to leveling off" in the US and that enterprise security may be the company's next billion dollar opportunity.

Service provider business remains "challenging," Chambers said. Orders decreased in the low teens from Q3, with business from incumbents dropping while that from alternative carriers rising slightly.

Nonetheless, Chambers said Cisco gained 3 to 5 market share points over Juniper Networks in Internet core routing, and the company is "comfortable with its momentum" in the service provider market. Cisco continues to build out China Unicom's VoIP network -- the largest in the world, according to Cisco -- and saw "strong" demand for its OC-192 router interfaces.

Cisco yesterday announced a deal with Qwest whereby Qwest will expand its long-haul, core and metro area networks and upgrade to 10G bit/sec OC-192 using Cisco's ONS 15454 optical transport platform, and the Cisco 12416 and 10008 Internet routers. Fifty percent of all packet-based network equipment expenditures go to Cisco, and the total available service provider market for Cisco is $40 billion by 2004, Chambers said.

Nonetheless, sales of Cisco's optical gear is a concern for the company, as growth of those products was "dramatically less" than the billion dollar run rate forecast, Chambers said. DSL sales were also disappointing, and the rate at which orders can deteriorate also troubles the company.

"We are in the very early stages of a major technological revolution," Chambers said. "This has been the most challenging year in Cisco's and probably the industry's history."

» posted by abennett

Network World Fusion

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