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Cisco Systems 1Q Profit Jumps 28 Percent

Posted November 9, 2006

— Shares of Cisco Systems Inc. surged after the company reported a 28 percent jump in quarterly profit on soaring sales of its core products and gains from a recent acquisition.

The world's largest maker of networking equipment, which has a major campus in Research Triangle Park, N.C., said after the market closed Wednesday that net income for the quarter ending Oct. 28 was $1.61 billion, or 26 cents per share, compared with $1.26 billion, or 20 cents per share, in the same period last year.

The company's shares gained as much as 9 percent in after-hours trading Wednesday, rising $2.26 to $27.36 after closing up 26 cents, or about 1 percent, at $25.10 on the Nasdaq Stock Market.

Analysts said the San Jose-based company profited from a buying binge among customers upgrading outdated gear and looking to offer faster Internet service for bandwidth-devouring video and other data downloads.

Cisco also from benefited from its $6.9 billion acquisition of Scientific-Atlanta Inc., the world's second-largest seller of cable television boxes, which added $584 million to Cisco's sales during the quarter. The deal closed in February.

"It's not quite the perfect storm, but a lot of things aligned nicely for them to be able to put these numbers up," said Zeus Kerravala, an analyst with the Yankee Group. "There was strength all over the place."

Quarterly sales for Cisco, which makes the routers, switches and other devices used to link networks and direct traffic on the Internet, were $8.18 billion, compared with $6.55 billion last year.

Cisco also produces digital subscriber line and cable broadband equipment, Voice Over Internet Protocol telephone service products and network management software.

Excluding one-time charges, Cisco would have earned $1.9 billion, or 31 cents per share.

The company was expected to earn, on average, 29 cents per share on $7.9 billion in revenue, according to analysts surveyed by Thomson Financial. John Chambers, Cisco's chief executive officer, said in a conference call that Cisco is succeeding in convincing customers to think of the network as the central platform for communications and IT needs.

"The balance was amazingly good everywhere," Chambers said. "All elements of our vision have evolved as we thought."

Sales increased across the company's core line of products.

Growth was particularly strong in emerging markets such as Eastern Europe, Latin America, Africa and the Middle East, where orders were up over 40 percent, and the commercial and service provider markets, said Dennis Powell, Cisco's chief financial officer.

"It wasn't just one area that drove this," Powell said in an interview with The Associated Press. "We were hitting on all cylinders. Every product and every geography was performing extremely well for us."

Cisco expects the momentum to help drive 24 percent to 25 percent year-over-year revenue growth in the fiscal second quarter, which would translate to about $8.2 billion or $8.3 billion in quarterly revenue, Powell said.

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