Cisco back to pre-slump growth in Q3

The company's revenue grew 27 percent in the quarter ended May 1

Cisco Systems emerged from the effects of the global economic downturn in its fiscal third quarter ended May 1, posting what Chairman and CEO John Chambers said was probably the company's best quarter ever.

Revenue grew 27 percent from a year earlier to US$10.4 billion while net income increased 61 percent to $2.2 billion, or $0.37 per share, based on generally accepted accounting principles. Not counting certain one-time items, Cisco earned $0.42 per share, well over the consensus analyst forecast of $0.39 per share, according to a poll by Thomson Reuters. Analysts had forecast revenue of $10.24 billion.

In a statement, Chambers said Cisco had registered record revenue and earnings per share and returned to a trend of balanced growth around the world that it had not seen since before the downturn. He also said Cisco is gaining market share and commanding a larger portion of its customers' spending.

"The financial results were outstanding," Chambers said on a conference call with analysts following the report.

The strong growth was spread almost all around the world, Chambers said. Of Cisco's 15 largest country markets, all but one showed increased orders and 12 of them logged order growth of more than 20 percent, he said. All of the company's major product lines also advanced, with switching revenue up 40 percent, routing up 23 percent and advanced technologies -- such as storage networking, wireless and security -- up 18 percent from a year earlier.

Orders for consumer products rose most rapidly, by more than 50 percent worldwide, but other categories also grew, including service providers at 30 percent and enterprises at 26 percent, the company said.

Cisco voiced confidence this trend will continue, forecasting year-over-year revenue growth between 25 percent and 28 percent in the current quarter. "Technology spending is clearly on fire," Chambers said at one point during the call.

The company also plans to continue hiring more employees, particularly in sales and in groups tackling the latest markets where Cisco is competing, he said. During the third quarter, the company hired about 1,000 people as part of an increase of between 2,000 and 3,000 planned over the next several quarters. The company also gained about 1,700 employees through its acquisition of Tandberg, the Norwegian enterprise video company it finished acquiring last month.

The economy bottomed out early last year, during Cisco's third fiscal quarter of 2009, and turned around the following quarter, Chambers said. "Our early optimism about the economic downturn ... turned out to be very accurate," he said.

Even concerns about the debt crisis in Europe that have emerged over the past few weeks haven't chilled growth prospects there, Chambers said. However, he warned that economic conditions and markets could "bounce up and down" over the next year or so.

Executives said Cisco has met its targets in the company's closely watched data-center infrastructure initiative. It has more than 2,000 customers for its Nexus series of data-center switches. Revenue from its UCS (Unified Computing System) server line grew 186 percent to an annual rate of $200 million, while the customer base for that product line grew to more than 900. Cisco won nearly all of those away from large incumbent vendors, Chambers said.

Orders grew about 50 percent for the company's Telepresence high-definition videoconferencing systems, which are selling at a rate of about $175 million per year, executives said.

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Stephen Lawson

IDG News Service
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