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11/9/2004
04:57 PM
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Cisco Profits Up 29%

CEO John Chambers says CIOs will continue to invest in IT over the long term, despite short-term ups and downs.

Market leading networking vendor Cisco Systems on Tuesday reported strong growth in sales and profits for the first quarter ended Oct. 30. Net income grew by 28.5% to $1.4 billion, or 21 cents per share, compared with $1.1 billion, or 15 cents per share, a year ago. The company also reported net sales of $6.0 billion for the quarter, compared with $5.1 billion a year earlier.

"It was our sixth quarter of sequential growth and we had reasonable balance across all of our markets," CEO John Chambers told financial analysts in a conference call. The numbers came in slightly below some Wall Street expectations, and Cisco's stock dropped in after-hours trading.

Sales of advanced technologies such as IP telephony, home networking, and wireless grew by more than 50% year over year, and the company also reported strong growth in sales to telecom service providers.

After talking recently to 50 CIOs, Chambers said he expects them to continue to invest in IT over the long term, although he expects short-term ups and downs based on confidence in the economy. He told analysts that business-technology managers will keep spending on computers, networks, and applications to simplify business operations and processes and improve productivity. "They will continue to invest in IT," he said.

Sales of products to the enterprise and commercial markets grew in the midteens on an annual basis, and executives expect that to continue as a series of new products introduced this year, including a high-end router called the CRS-1, gain acceptance. "It takes some tire kicking before a product of this magnitude takes hold," chief technology officer Charles Giancarlo told InformationWeek. The buying cycle for a product like the CRS, which is being tested by 16 customers, can take a year to 18 months, he said.

The company also reported strong sales for its IP PBX, with orders up 50% year over year. It also shipped 500,000 IP phones in the quarter. "According to analyst reports, we are No. 3 or No. 4 in the world in total PBX shipments," Giancarlo said. "We were zero five years ago."

The company also said its board had authorized it to spend up to $10 billion in stock buybacks, although it didn't specify a timetable for the repurchases. The board previously authorized a $25 billion stock buyback.

Wall Street expected the world's largest maker of networking equipment to report profit gains based on sales of home networking products and phones for sending calls over IP networks. A survey of 35 analysts by Thomson Financial predicted a 24% jump in first-quarter profit for the company.

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