Cisco's Results Show Product Diversification, But Revenues Lag

SAN JOSE, Calif. (AP) -- Cisco Systems Inc. reported higher sales and profits for its fiscal fourth quarter as efforts to expand beyond its core router and switch businesses appeared to be paying off. Still, revenues missed Wall Street expectations.

Though the network equipment giant reported a 12.3 percent jump in sales over the same period last year, executives said Tuesday they would like to see higher growth.

``Trust us, we are doing everything within our power to make that happen,'' said John Chambers, Cisco's chief executive.

The company expects fiscal third-quarter sales to be flat to up 2 percent over the second quarter, or as much as 10 percent year over year. The third quarter has historically been one of the weakest, and the period is a week shorter this year.

Despite the disappointing growth in sales, executives said they were pleased with the second-quarter results _ particularly strong growth in its advanced technology businesses of Internet telephony, optical networking, security, storage, wireless and home networking.For the three months ended Jan. 29, Cisco earned $1.4 billion, or 21 cents per share. That compares with $724 million, or 10 cents per share, in the same period of fiscal 2004, which was hit by a $567 million noncash expense resulting from an accounting rules change.

Excluding special items, Cisco earned $1.48 billion, or 22 cents per share, compared with a profit of $1.32 billion, or 18 cents per share, in the same period in fiscal 2004. Sales jumped to $6.06 billion, from $5.4 billion last year.

Analysts were expecting earnings of 22 cents on sales of $6.13 billion, according to a survey by Thomson First Call. In November, the company said it expected year-over-year sales to increase as much as 14 percent over the current quarter.

``Revenue came in a little light, but ... things are still somewhat challenging right now,'' said Chris Sessing, an analyst at Crowell, Weedon & Co. ``It was nice to hear that order growth exceeded revenue, so it sounds like the pipeline is pretty strong.''

Since the high-tech bubble burst four years ago, Cisco has been branching out into areas beyond its core router and switching business. The strategy is paying off, Chambers said.He credited Cisco's success with a decision to develop advanced technologies, make them work together and integrate them into its core routers and switches, which act as traffic cops for data over much of the Internet and other networks.

``Advanced technologies were the top highlight, and our cash engine is cranking pretty good,'' he said. ``Our architectural strategy appears to be playing both here and around the world.''

The six new businesses grew, on average, in the 40 percent range, he added.

Chambers also said year-over-year growth rates among U.S. businesses was strong in the second quarter _ a sign that capital spending is on the increase.

``While it's too early to call this a sustainable movement, we are obviously cautiously optimistic to see this occurring in Q2, which in recent years hasn't been that strong a quarter for the enterprise and commercial markets in the U.S.,'' he said.For the first six months of fiscal 2005, Cisco earned $2.8 billion, or 42 cents per share, on sales of $12.03 billion. That compares with profits of $1.8 billion, or 25 cents per share, on sales of $10.5 billion in the same period of fiscal 2004.