Cisco profit falls on acquisition charge

by Stephen Lawson

May 6, 2008 —

Cisco Systems revenue rose more than 10 percent in the company's fiscal third
quarter, though its net income fell due to an acquisition charge and other one-time
factors.

Revenue rose to US$9.8 billion from $8.9 billion a year earlier, while net
income was $1.8 billion, down 5.4 percent from $1.9 billion in last year's third
quarter. Cisco earned $0.29 per share, down from $0.30 per share a year earlier.

But excluding certain charges, earnings were $0.38, up from $0.34 a year earlier,
Cisco said. The company took an acquisition-related charge of $246 million,
or $0.04 per share, in the quarter.

The charge was related to Cisco's acquisition of the remaining 20 percent of
data-center technology vendor Nuova Systems.

Cisco is still comfortable with its long-term revenue growth forecast, Chairman
and CEO John Chambers said on a conference call following the release.

The company was hit by the economic slowdown in the U.S., where product orders
were especially slow in enterprises and service providers, but Chambers believes
spending will start to rebound by the end of this year. The U.S. is Cisco's
biggest market. The company will emerge from the downturn with a bigger share
of the market and available profit, just as it did after earlier slowdowns in
1993, 1997, 2001 and 2003, Chambers said.

"This is a relatively short-term challenge going forward," Chambers
said. He added that he is optimistic about a majority of the global economy
outside the U.S.

In Japan, service providers are beginning to invest in their next generation
of networks, Chambers said. Order growth there is rebounding after about 15
months in the doldrums, he said. This is significant because Japan builds out
the latest networks before other parts of the world do, Chambers said.

Results in the Asia-Pacific region as a whole were strong, with China and India
leading the way thanks to Cisco's growing investments in both of those countries.
The company has based high-ranking executives at a globalization center in India
and last year decided to invest aggressively in the Chinese market.

Cisco is optimistic about IP network building, with video driving the most
demand. The need for more capacity helped increase revenue for the company's
CRS-1 carrier core router by about 150 percent in the quarter, Chambers said.
Over the next three to five years, investment in Web 2.0 applications for collaboration
will also benefit Cisco, especially as Web 2.0 comes to be defined as voice
and video in addition to data applications, he said.

Routing revenue overall grew 14 percent in the quarter, while switching grew
by just a few percentage points, a result Chambers attributed to customers hesitating
to buy while they evaluate Cisco's recently introduced Nexus data-center platform.
Among the company's newer technologies, unified communications was a highlight,
growing 46 percent in revenue.

IDG News Service