Cisco posts record profit in Q4

Cisco posts record profit in Q4

Cisco Systems has reported record-high net income of $US1.4 billion and earnings per share of $US0.20 for the fourth quarter ended July 31, a significant leap from net income of $US982 million and earnings per share of $US0.14 in last year's fourth quarter.

The profit met a consensus forecast of $US0.20 per share from analysts polled by First Call/Thomson Financial. It came on net sales of $US5.9 billion, up from $US4.7 billion in the year-earlier quarter, according to a statement from Cisco.

Analysts had forecast net sales of $US5.88 billion.

Both the net income and earnings per share were Cisco's biggest ever, according to US Generally Accepted Accounting Principles (GAAP) and on a pro forma basis, president and chief executive officer, John Chambers, said.

Cisco also announced two other milestones in its recovery from the telecommunications slump. Chambers' salary of $US350,000 per year was reinstated effective August 1, after he asked Cisco in April 2001 to pay him $US1 per year until the company recovered. He also has not received a bonus since June 2001.

And in the fourth quarter, Cisco reported its first net increase in headcount excluding acquisitions in many years, Chambers said.

The company planned to add 1000 employees by the end of the calendar year, a majority of them in research and development, he said. At the end of the quarter it had 34,371 employees, a net increase of 64.

On the call, Cisco forecast revenue to remain flat or go up slightly in the first quarter of 2005 from 2004's final quarter. Customers say they are more cautious than they were a month ago, Chambers said.

"Most of the CEOs that I've talked with view the economy as growing at a modest level," Chambers said.

Cisco characterised its results as generally strong across countries and product categories, with the strongest growth in the US and the Asia-Pacific region.

In the US, Cisco's biggest market with 48 per cent of its revenue, enterprise and commercial sales grew strongly for the second quarter in a row and sales of service provider equipment had their strongest growth in more than three years, Chambers said.

Cisco got 30 per cent of its sales from Europe, the Middle East and Africa, 11 per cent from the Asia-Pacific region, 7 per cent from Japan and 4 per cent from the Americas excluding the US Russia was a highlight, with sales growth of 40 per cent year-over-year, and sales in China and India showed strong growth as well, he said.

Switch sales brought 41 per cent of Cisco's revenue in the quarter, with routers accounting for 24 per cent, services 16 per cent and other revenue 3 per cent.

Cisco's advanced technologies, which are generally new product categories it has entered over the past few years, accounted for 16 per cent of revenue. They include Internet Protocol (IP) telephony, home networking, optical, security, storage and wireless.

It was an action-packed quarter for Cisco, from the introduction of the Carrier Routing System-1 (CRS-1), the company's first totally new IP core platform since 1997, to the apparent theft of code from Cisco's proprietary Internetwork Operating System (IOS) software.

The company also agreed to acquire assets of former rival Procket Networks and appointed long-time Cisco executive Charlie Giancarlo as chief technology officer.

In his new role, Giancarlo plans to look for new market and technology opportunities, bring together technology initiatives within Cisco to allow for more integrated networks, and foster interaction between Cisco's technology teams and its customers.

Giancarlo said new technology in the CRS-1, especially as a new version of software called IOS XR, would trickle down to other products slowly. The CRS-1 was a router for the core of large service-provider networks.

"Because the IOS XR was designed for that very unique and demanding environment, it may be some time before some of those capabilities will get into other products," Giancarlo said.

The software would stay focused on the service provider segment for some time, he said.

On the conference call, Chambers listed growing competition from Asian networking vendors as one of Cisco's areas of concern for the future. "If you look out five years from now, and definitely in 10 years, the majority of our competitors will be [from] Asia," Chambers said.

For Cisco's full 2003 fiscal year, net sales were $US22 billion, up from $US18.9 billion the previous year. Net income for the year was $US4.4 billion, or $US0.62 per share, compared with $US3.6 billion and $US0.50 per share for fiscal 2003.

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