Cisco Delivers Mixed Bag

(Nasdaq: CSCO) expects revenue growth to continue humming for fiscal 2006, but the road is starting off bumpy, with a second-quarter forecast that undercuts analysts' estimates.

For the first quarter of fiscal 2006, Cisco today reported net income of $1.3 billion, or 20 cents a share, on revenues of $6.5 billion, compared with net income of $1.5 billion, or 24 cents a share, on revenues of $6.6 billion for the previous quarter. (See Cisco Reports Q1.)

For its first quarter a year ago, Cisco reported net income of $1.4 billion, or 21 cents a share, on revenues of $6 billion. Those results don't include the expensing of stock options, which kicked in this quarter; including that factor, last year's first-quarter net income would have been 17 cents a share, officials said.

Cisco's non-GAAP earnings per share was 25 cents, beating analyst estimates by a penny, according to Thomson Financial.

But Cisco's revenue forecast missed the mark. The second quarter, which ends in January, should see revenues climb 8 to 9 percent from the previous year, officials said. Analysts had expected an 11 percent jump.

The forecast puts Cisco's January-quarter revenues between $6.55 billion and $6.61 billion, compared with analyst estimates of $6.73 billion, according to Thomson.

Cisco's stock was up 2 percent in early after-hours trading but turned south, possibly due to the revenue guidance. At press time, the stock was trading down $0.31 (1.75%) to $17.44.

Digging into the first-quarter numbers, Chambers had plenty of good news in what's traditionally a slow quarter for Cisco. Slow growth in Europe was counterbalanced by solid numbers from other countries.

The U.S. was a particularly pleasant surprise, with year-to-year growth of 15 percent, which is "better than we saw in any quarter of fiscal year '05," Chambers told analysts on a conference call this afternoon.

For fiscal 2006, Cisco expects revenue growth of 10 to 12 percent, keeping with Chambers' repeated assertions that the market can support 10 to 15 percent annual growth for the company.

Cisco continues to trumpet its advanced technologies, six areas expected to become $1 billion businesses: wireless, optical, home networking, storage networking, IP telephony, and security. Chambers pledged to announce two more advanced technologies before the end of 2005. That's more aggressive than his stance last quarter, when he talked about introducing new advanced technologies every few months in fiscal 2006.

Cisco also intends to classify some areas as "emerging technologies," a term applied "when it's too early to predict the eventual size of the overall market or the eventual size of Cisco's business," chief development officer Charles Giancarlo said on the call.

Application-oriented networking (AON) and the IP Interoperability and Collaboration System (IPICS) are the first two of these emerging technologies. AON is a set of technologies aimed at making the networks more aware of the applications being run; IPICS is a platform for connecting two-way radios, particuarly those used by emergency services. (See Cisco Speaks Applications and Cisco's Emergency Connection.)

— Craig Matsumoto, Senior Editor, Light Reading

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