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Telecom Firms Push Cisco Profit Sharply Higher

May 12, 1999|KAREN KAPLAN | TIMES STAFF WRITER

Strong sales to telecommunications companies boosted Cisco Systems Inc.'s third-quarter revenue 44% and prompted the top computer-networking company to declare a 2-for-1 stock split Tuesday.

Profit for the fiscal quarter ended May 1 rose 41% to $646 million, or 38 cents per share, from $457.3 million, or 29 cents, a year ago. That was slightly stronger than the 37 cents analysts had forecast for the San Jose-based company, according to estimates compiled by IBES International. Revenue increased to $3.2 billion from $2.2 billion a year ago.

Orders from phone companies and Internet service providers that are upgrading their networks were the main source for Cisco's growth. The segment, which accounts for about a third of the company's revenue, grew 70% in the quarter, Executive Vice President Don Listwin said.

Sales in Cisco's core enterprise market logged a healthy 30% increase, which analysts said was well ahead of gains at rivals such as 3Com and Cabletron Systems. Cisco also boosted sales of its less expensive networking equipment to small and medium-sized firms through distribution partners, Listwin said.

"It was a Cisco kind of quarter," said David Takata, vice president of research for Gruntal & Co. in Los Angeles. "There is very little to fault."

Wall Street agreed. Cisco's shares rose $2.64 to close at $111.88 on Nasdaq in anticipation of the earnings announcement, then jumped another $1.63 in after-hours trading after the report.

The performance was particularly strong considering its third quarter is usually Cisco's slowest, Chief Executive John Chambers said.

Analysts say one of the biggest opportunities for Cisco will be selling equipment to the phone and cable companies that are racing to build networks to provide high-bandwidth Internet connections. Phone companies are using a technology called digital subscriber line, or DSL, while cable companies are upgrading their networks to accommodate cable modems. Both technologies offer Internet connections that are seven to 27 times faster than standard dial-up modems.

While phone and cable companies battle one another on the technological front, Cisco is making money from both sides. Listwin predicts the market segment will become a $500-million business by the end of 1999 and bring in $1 billion in sales in 2000.

Cisco's board approved the stock split--the company's eighth since its 1990 initial public offering--for shareholders of record on May 24. The split, which takes effect June 21, is designed to make the stock more affordable and reflects the company's optimism about its long-term market opportunities, Chief Financial Officer Larry Carter said.

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