Cisco revenue, profit rose in Q1

Cisco posted a double-digit rise in revenue in its fiscal first quarter ended Oct. 27, with an even bigger gain in profit.

First-quarter revenue was $9.6 billion, up nearly 17 percent from $8.2 billion in last year's first quarter. Net income rose more than 37 percent to $2.2 billion from $1.6 billion a year earlier. Earnings per share were $0.35, up from $0.26 in last year's first quarter.

In a statement, Chairman and CEO John Chambers cited "balanced execution across the company" in the revenue and profit rise. Chambers sees a strong future for Cisco with a second phase of Internet investment driven by multimedia and Web 2.0 technologies. As the biggest maker of routers for the Internet core and enterprises, the San Jose company wins when IP traffic grows.

Excluding certain items such as employee share-based compensation, the company posted earnings of $0.40 per share. That beat the consensus estimate of $0.36 from financial analysts polled by Thomson Financial. Cisco's revenue also surpassed the analysts' forecast.

Growth in carrier router sales was a high point of the quarter, Chambers said in a conference call following the earnings report. High-end router revenue grew about 28 percent, driven by demand for IPTV and other video applications. Switching revenue grew 8 percent, possibly held back by enterprises waiting for upgrades to the Catalyst 6500 and 4500 lines that were announced Tuesday, Chambers said.

The only major weak point Chambers cited was in the U.S. enterprise market, where orders grew in single digits. That weakness came in part from overall trends in the nation's economy, with orders from financial services and automotive companies declining, he said. The company expects U.S. enterprise growth to remain lumpy.

U.S. woes are less likely to drag down the world economy now, and globalization is helping drive growth in U.S. enterprises, Chambers said. In Cisco's top accounts, about 60 percent of product orders are for deployments outside the country, versus just 45 percent a few years ago, he said.

However, after-hours stock traders worried the U.S. slowdown would ripple across Cisco's business. The company's stock was down $3.02 at $29.74 a few hours after the Nasdaq closed for the day.

Echoing comments made during a tour of China and India last week, Chambers said Cisco's strategy in emerging markets is paying off. Percentage order growth in those countries was in the mid-30s, and the company expects expansion in those markets at more than twice the rate elsewhere in the world. Having invested heavily in India, Cisco now plans to dramatically expand its presence in China, he said.

"To say that I'm excited about it... would be an understatement," Chambers said.

Development of the country's central and western regions, which is helping to address income disparities, and the emergence of a strong software industry all spell growing opportunities, Chambers said. He cited the booming Internet commerce site, which uses Cisco's WebEx online conferencing service, as an example.

For the second quarter, Cisco expects year-over-year revenue growth of 16 percent, continuing at the high end of its ongoing long-term guidance of 12 percent to 17 percent revenue growth per quarter.

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Copyright © 2007 IDG Communications, Inc.