Cisco Reports $10M SAN Sales

Cisco Systems Inc. (Nasdaq: CSCO) revenues were down from a year ago, but it continues to show a tidy profit, even as spending is down in most areas in which it works.

As its revenues slowly slide away in tandem with corporate spending overall, analysts remain watchful of Cisco's core businesses. "We believe the biggest issue for Cisco is the growth, or lack of it, of its core products, routers and switches, which make up in excess of 80 percent of revenues when service revenues related to their sales are included," wrote Legg Mason Inc. analyst Timm P. Bechter in a report issued this morning.

That said, routers and switches were 27 percent and 41 percent of Cisco's revenues during the quarter, which was pretty much on par with its previous quarter's results. Indeed, the pie may be getting smaller, but Cisco doesn't appear to be giving up any of its slice.

While Cisco's core business may be sliding a little, the company's surge into storage is going well, CEO John Chambers said on a conference call today. He singled out SANs as one of the most promising new advanced technology segments for the company.

In the third quarter, he said, Cisco brought in nearly $10 million in storage revenues. The company expects to double that number sequentially each quarter for the next couple of quarters. However, he said, We won’t have a real feel for [how this area will do] before later this year.”Cisco's partnerships with the top four storage vendors was also mentioned several times on the call as a great achievement (see Cisco Puffs Up Reseller Deals).

For its third quarter of fiscal 2003, Cisco earned (pro forma) $1.1 billion, or 15 cents a share on revenues of $4.6 billion. Analysts surveyed by Multex.com Inc. expected Cisco to earn 14 cents a share on revenues of $4.6 billion, so Cisco's report was slightly better than expected. But its results were still down from the year-ago quarter, when it earned 11 cents a share on revenues of $4.8 billion.

Using real numbers -- generally accepted accounting principles (GAAP) -- Cisco's net profit for the quarter was $987 million, or 14 cents a share, compared to its year-ago quarterly profit of $729 million, or 10 cents a share. Over a longer stretch, though, Cisco's numbers in fiscal 2003 look even better. Its profits for the first nine months of fiscal 2003, on a GAAP basis, were $2.6 billion (36 cents a share), compared to profits of $1.1 billion (15 cents a share) for the first nine months of fiscal 2002.

During the quarter Cisco overcame two months of lower-than-expected sales to end the quarter on a high (see Sources: Cisco's Sales Light). However, Cisco executives cautioned that April's strong bookings don't necessarily mean a thing for the rest of the year.

The company ended the quarter with $20.3 billion in cash, cash equivalents, and investments. Cisco also bought back $2 billion of its shares, bringing its nine-month tally of share repurchases to $4.5 billion.But as tight a ship as Cisco is running, it is just as susceptible to a messed up economy as any other company. After nearly a three-minute buildup, exhausting just about every buzzword in the English language, Chambers finally revealed that Cisco expects its revenues to be flat for its fourth fiscal quarter of 2003. Chambers noted that he was optimistic about the factors Cisco can control, but more "cautiously optimistic" about "external factors."

During the quarter, Cisco acquired two companies (see Cisco Buying Linksys for $500M and Cisco Snatches SignalWorks); overcame a couple of months of weak sales (see Cisco Reseller Throws Cold Water); and continued to make its case for not expensing stock options, which it feels will lead to job losses to other, primarily Asian, countries and reduced employee ownership (see Chambers Attacks Accounting Plans).

Speaking of job loss, Cisco continued to shed staff during the quarter as well, as its headcount dropped 486 to 34,501 employees.

— Phil Harvey, Senior Editor, Light Reading, and Eugénie Larson, Reporter, Byte and Switch