Cisco profits buoyed by steady demand

Steady demand for Cisco Systems' routers and other key products enabled the world's largest maker of internet networking equipment to meet Wall Street expectations by reporting a 12 per cent increase fiscal fourth-quarter profit.

But Cisco, considered a bellwether of network spending, rattled investors with fiscal first quarter guidance that fell short of analysts forecasts. Shares fell more than 4 per cent in after hours trading.

The company, which makes routers and switches that direct traffic across the internet and corporate networks, said net income rose 11.6 per cent to $1.54bn, or 24 cents per share, compared with $1.38bn, or 20 cents per share a year ago. Sales rose 11.1 per cent to $6.58bn. Pro forma earnings were $1.63bn, or 25 cents a share. On that basis, Wall Street analysts expected Cisco to earn 25 cents per share on revenue of $6.56bn.

For the current fiscal first quarter, Cisco said revenue would be flat to down slightly from the just ended fourth quarter and up 10 per cent on a year over year basis. That suggests sales of $6.57bn for the quarter ending in October, below the average Wall Street forecast of $6.63bn.

John Chambers, the group's chief executive, said first quarter orders not revenue would be a more accurate indication of momentum because orders were expected to grow faster than revenues in the first two quarters of fiscal 2006 and that year-over-year comparisons on revenue alone would understate the company's growth.

“The bottom line is that our order growth rate remains remarkably predictable,” said Mr Chambers.

Tim Luke, analyst at Lehman Brothers, said it was very possible that Cisco was being very conservative with its first quarter guidance, but the market was likely to view it as “somewhat disappointing.”

For the 2006 year, Cisco projected revenue growth of 10-12 per cent, well within the company's 10-15 per cent growth forecast for the next several years, but slightly below Wall Street analysts' forecasts.

Shares in Cisco gained 1.9 per cent to close the regular session at $19.61, but were down more than 4 per cent at $18.79 in after hours trading. Analysts said the company's shares were unlikely to move higher until Cisco delivers consistent revenue growth above its recent performance.

In an unusual move, Mr Chambers also addressed recent reports suggesting that Cisco was interested in acquiring Nokia, the Finnish mobile phone maker.

Mr Chambers said it was “extremely unlikely” that Cisco would move to acquire a large company “halfway around the world.” He noted that buying a large company was “not something strategy-wise that we now how to do well.”

Cisco has long maintained that its ideal acquisition target was a small private company with 100 employees that was just beginning to generate revenues.