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Optical/IP

Cisco Profits Up, Outlook Down

Cisco Systems Inc. (Nasdaq: CSCO) reported higher profits but lower sales for its fiscal second quarter. The company also had a subdued outlook for its next quarter, but it pointed to hopes for growth in the wireless networking and storage networking markets (see Cisco Posts Q2 Profit).

The company reported net income of $991 million, or 14 cents per share, for its fiscal 2003 second quarter, ending Jan. 25. This compared with earnings of $660 million, or 9 cents a share, in the year-ago quarter. It logged $4.7 billion in revenue in the second fiscal quarter, down from $4.8 billion a year earlier and also down from the $4.8 billion it reported in the first fiscal quarter.

Analysts expected net income of 13 cents per share and revenues of $4.73 billion, according to First Call. Excluding one-time charges and profits, it earned 15 cents a share, compared with 9 cents last year.

Cisco CEO John Chambers had a subdued outlook for the company's next fiscal quarter of 2003, saying that the company expected sales to be "flat to slightly down." The company qualified "slightly" as meaning sales could decline 2 percent to 3 percent.

"We are seeing even more conservative attitudes than a quarter ago," said Chambers on the quarterly conference call. "There was a little more weakness in the first few weeks of January than we expected."

Overall, Cisco executives are looking for growth in the wireless networking and storage networking areas, but they continue to have a conservative outlook for the wireline service provider market.

Chambers specifically said the storage networking could be the "most exciting," pointing to new reseller agreements with Hewlett-Packard Co. (NYSE: HPQ) and IBM Corp. (NYSE: IBM) to sell its MDS 9000 Series storage switches (see IBM Tells Cisco: 'Let's Go!' and HP Refills Its SAN Flask). He also referenced the new reseller deal with Lucent Technologies Inc. (NYSE: LU) for IP gear targeted at wireless networks (see Lucent & Cisco: Together at Last).

At the same time, Chambers reported little change in the service provider equipment market.

"Spending from service providers remained relatively flat, but there are some positive signs that customers are driving capital expenditure toward packet infrastructure," said Chambers.

Despite all the bad news, the company continued to preserve the cash in its bank account. At the end of the quarter, the company had $21.2 billion in cash, the same as the $21.2 billion it held at the end of the last quarter.

Regardless of its substantial cash position, the company does not appear eager to start paying a cash dividend to shareholders, but it will consider paying a dividend in the future.

"We do not have a religious position on dividends," said Chambers. The company will first look at other uses of its cash, including share repurchases, acquisitions, and investments, said Chambers.

- R. Scott Raynovich, US Editor, Light Reading
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