Cisco booms on internet growth

Cisco Systems reported strong growth in revenue and profit for a fiscal third quarter in which it made several acquisitions that it expects to help power Web 2.0.

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Cisco Systems reported strong growth in revenue and profit for a fiscal third quarter in which it made several acquisitions that it expects to help power Web 2.0.

The dominant network vendor's revenue rose to US$8.9bn (£4.5bn) for the quarter, up 21% from the same quarter a year earlier. Net income grew almost 34% to $1.9bn (£950m), for earnings per share of $0.30 (15p), on a generally accepted accounting principles (GAPP) basis.

Excluding certain items, net income was $2.1bn (£1bn) or $0.34 (17p) per share, beating the consensus forecast of analysts polled by Thomson Financial by $0.01 (£0.005) per share and more than $100m (50m) of revenue on a non-GAAP basis.

During the quarter, which ended April 28, Cisco acquired online collaboration vendor WebEx Communications for $3.2bn (£1.6bn) and also bought social networking technology developer Five Across and some assets of Utah Street Networks, another social networking company.

Chairman and chief executive John Chambers enthused about the quarter on a conference call following the earnings announcement.

"Q1, Q2 and Q3 were unusually strong quarters," Chambers said. Cisco said the good times would continue, forecasting revenue of $9.2bn (£4.6bn) to $9.3bn (£4.7bn) in the fourth quarter, up between 15% and 16% from a year earlier.

Product orders were strong across almost all regions and products, except for continued weakness in Japan and flat results in the US enterprise equipment market. Web 2.0, which Cisco described as including unified communications, collaboration, blogs and other features, is driving network upgrades, the company said.

"The second phase of the internet ... will drive the industry for the next decade," Chambers said.

The company's CRS-1 (Carrier Routing System) flagship router for carrier core networks was a highlight, with sales of almost $250m (£125m) in the quarter, driven partly by the growth of video traffic. Sales at Cisco's Scientific-Atlanta subsidiary also soared as service providers equipped their customers with high-definition set-top boxes and digital video recorders.

Emerging markets continued to stand out, with average product order growth around 40% overall and 50% increases in both Eastern Europe and India. Cisco expects spending in Japan to take off late this year or in early 2008 when carriers there start building their next-generation networks.

Most enterprises in the US are being conservative about investing in networks, including new technology such as unified communications and Cisco's high-end Telepresence virtual conferencing systems, executives said.

Cisco plans to expand its software business in the next fiscal year, following on from its acquisition of WebEx and taking advantage of changes in the way business processes are delivered, said senior vice president and chief development officer Charles Giancarlo.

"Cisco is really a software company wrapped up in steel clothing," with 65% of its engineers working on software, Giancarlo said.

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