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Cisco reports 18% rise in quarterly revenue;  Acquisition aids growth while boosting outlook

Wed, 05/10/2006 - 7:03am

Copyright 2006 Gannett Company, Inc.
All Rights Reserved
USA TODAY
May 10, 2006 Wednesday 
FIRST EDITION
By Michelle Kessler
From Lexis Nexis

Cisco Systems said Tuesday that revenue in its most recent quarter jumped 18% from a year ago, thanks to a big acquisition that also might be the networking giant's best bet for long-term growth.

Cisco announced plans to acquire cable TV set-top box maker Scientific Atlanta in November, but the deal wasn't complete until late February. The new division contributed $407 million in revenue in the quarter ended April 29.

That helped propel Cisco to overall revenue of $7.3 billion, up from $6.2 billion a year
ago. The results beat Wall Street estimates.

Scientific Atlanta, which makes set-top boxes for Time Warner and other cable companies, might seem like a strange partner for Cisco, which sells pricey networking gear to big businesses. But the acquisition makes it easy for Cisco to enter two fast-growing markets: home networking and digital TV.

"They're very well positioned," says equity analyst Art Russell at Edward Jones. "They're gaining share, and order growth is very strong."

Cisco's traditional businesses did well, too. "We had balanced performance across almost
all of our key product categories," CEO John Chambers said in a conference call.

Sales were geographically balanced, with most countries posting strong results, he said. The U.S.A. and Canada were solid, with a 20% jump in orders from a year ago, not including Scientific Atlanta.

Emerging markets, including Russia and Brazil, were also very strong, with a 40% order jump, excluding the acquisition. One weak spot was Japan, where order volume fell.

Cisco's net income of $1.4 billion, or 22 cents a share, was essentially flat from a year ago. But that's a little misleading. A year ago, the Securities and Exchange Commission did not require Cisco to deduct the cost of its stock options from revenue. Now, it does.

Excluding the impact of that accounting change, Cisco's net income rose about 19%.

"Our business momentum is increasing," Chambers said. "There is solid business
optimism among almost all of the leaders I've talked to around the world in the last quarter." Chambers said he has not seen the weakness cited by Intel, Dell and other tech companies.

Despite this bullish stance, Cisco issued a relatively conservative earnings estimate for
the current quarter. The company expects revenue of $7.8 billion to $7.95 billion.
The cautious forecast might be why Cisco's shares fell 1.5% to $21.35 in after-hours
trading on the news, released after market close. Cisco shares have risen 24% this year.

Cisco added more than 8,000 employees during the quarter, mainly through acquisitions.

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