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Cisco Profit Jumps Despite Sales Dip

Net income rises 35% in its third quarter thanks to cost cutting. The firm also exacted lower prices from suppliers.

May 07, 2003|P.J. Huffstutter | Times Staff Writer

Despite a slump in corporate spending on technology, networking giant Cisco Systems Inc. on Tuesday posted a 35% jump in fiscal third-quarter earnings thanks to aggressive cost cutting.

The San Jose company, the leading maker of equipment that routes and handles Internet traffic, reported a profit of $987 million, or 14 cents a share, for the quarter, which ended April 26.

That was a healthy bump up from the net income of $729 million, or 10 cents a share, in the same period last year.

Sales, however, dropped 4.2% to $4.62 billion in the latest quarter from $4.82 billion a year earlier.

Excluding one-time charges, Cisco earned 15 cents a share, one penny above what Wall Street analysts had expected.

"I'm a little more than cautiously optimistic about what the future holds," Cisco Chief Executive John Chambers said.

Part of the company's boost came from an aggressive push to cut costs, such as shrinking its staff by 5,000 over the last two years and demanding lower prices from component makers, to offset the decline in sales.

Cisco also made surprising cuts in research and development, slashing R&D spending 13%. Overall, the company reduced operating expenses 7.8% to $2.02 billion.

"They basically cut research and development to meet their bottom-line number," said Timm P. Bechter, an analyst with Legg Mason Wood Walker who does not own any Cisco stock. "It's somewhat shocking for R&D to be that much lower."

Yet the cuts won't prevent Cisco from pursuing ventures in a trio of new markets, Chambers said Tuesday. Cisco expects to introduce new products for wireless technology, Internet phone calling and storage-area networks.

It was that push that led to the recent deal to buy home networking gear maker Linksys Group Inc. of Irvine for about $500 million in stock. The acquisition is set to close in the fiscal fourth quarter.

Cisco's shares rose 51 cents, closing at $15.90 a share on Nasdaq before the results were released. They dipped to $15.60 in after-hours trading.

Bloomberg News was used in compiling this report.

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