Cisco's Chambers sees economy on the mend

Cisco Systems, the largest maker of networking equipment, reported a return to revenue growth and said that a second phase of economic recovery had begun.

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Cisco Systems' results for its fiscal quarter ended last month indicate the world economy is entering a second phase of recovery, Chairman and CEO John Chambers said Wednesday.

Cisco posted revenue of US$9.8 billion in the second quarter of its 2010 fiscal year, ended 23 January, an 8 percent increase from a year earlier. Its net income was $1.9 billion, or $0.32 per share, up 23 percent from the quarter a year earlier.

"Our outstanding Q2 results exceeded our expectations and we believe they provide a clear indication that we are entering the second phase of the economic recovery. During the quarter we saw dramatic across the board acceleration and sequential improvement in our business in almost all areas," Chambers said in the company's earnings press release.

Not counting certain one-time items, the dominant networking vendor earned $0.40 per share, exceeding analysts' consensus expectation of $0.35 per share, according to a survey by Thomson Reuters. The analysts had forecast revenue of $9.4 billion, a number Cisco also exceeded.

"Q2 clearly was another tipping point," Chambers said on a conference call following the announcement.

"Every time we've seen anything close to this, we've seen very solid recovery," Chambers said. "It feels very good."

Cisco marked its 25th anniversary during the quarter, even as it moved farther beyond its roots in switching and routing with wireless, consumer electronics and server products. In November, the company dove deeper into virtualised data centres as it formed a coalition in which EMC will provide storage components and VMware will contribute its software to work with Cisco's Unified Computing System server platforms. Also during the quarter, it closed the earlier acquisitions of mobile infrastructure vendor Starent, for about US$2.9 billion, and of software-as-a-service company ScanSafe.

Cisco said it expects continued strong results, with revenue in the current quarter rising between 23 percent and 26 percent from a year earlier.

As a measure of its confidence, the company said it now plans to hire between 2,000 and 3,000 people over the next several quarters and has already begun that process. It will add employees across all types of jobs to pursue strategic opportunities, including entering new markets. Cisco is moving into 30 new "market adjacencies," Chambers said.

Results improved across virtually all regions and product categories after major declines in the previous quarter, Cisco said. Overall product orders worldwide rose 11 percent, after a drop in the "high single digits" the previous quarter. The US led the way in the recovery, with orders rising 17 percent. Cisco's orders from US service providers were up more than 20 percent.

Orders rose 4 percent in Europe and more than 10 percent in the Asia-Pacific region, while Cisco had mixed results in emerging markets, with flat orders overall.

Switching revenue rose 13 percent and routing was up about 2 percent. While high-end routing revenue increased 12 percent, sales of midrange and low-end routers fell from a year earlier.

Revenue from Cisco's advanced technologies gained about 1 percent after having fallen 15 percent the previous quarter. Some of those technologies, such as unified communications, rose strongly while others fell. For example, storage network sales fell 1 percent and application networking products dropped 7 percent.

The Unified Computing System architecture announced last March has made strong inroads, according to Cisco executives, with orders doubling from the previous quarter. The company now has about 400 UCS customers, with most of them at the pilot or implementation stage. Chambers expects that business to easily bring in $1 billion in revenue this year.

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