Cisco misses earnings forecast

Cisco Systems has finally slipped. In a widely anticipated earnings announcement, Cisco missed expectations for the second quarter of fiscal 2001.

          Cisco Systems has finally slipped. In a widely anticipated earnings announcement, Cisco missed expectations for the second quarter of fiscal 2001. The company reported pro forma earnings of $US1.33 billion, or $0.18 a share, on sales of $6.75 billion. Wall Street had been expecting a profit of 19 cents per share, and Cisco usually beats expectations by a penny.

          Per-share earnings for the second quarter were flat from the first fiscal quarter of 2001. Regardless, Cisco stock ended up $1.19 Tuesday at the closing bell, an increase of 3.4%.

          Cisco Chief Executive Officer John Chambers had been warning observers that the quarter was more challenging than expected, due to general economic conditions, including reduced spending by enterprises and service providers, and a shortage of components for key products.

          "It was even more challenging than anticipated," Chambers said in an earnings call Tuesday.

          Second-quarter sales were up 55% from the same period a year ago. Pro forma earnings were up 48%, and earnings per share up 50% from the second quarter of 2000.

          Second-quarter revenue was only up 4% from the first quarter, however, which was "below expectations," Chambers said.

          Actual net income for the second quarter of fiscal 2001 -- including the effects of acquisition charges, payroll tax on stock option exercises, and net gains realized on minority investments -- was $874 million, or $0.12 per share, compared with $816 million, or $0.11 per share, for the same period last year.

          For the six-month period ended Jan. 27, 2001, sales of $13.27 billion were up 60% from year-ago results. Pro forma net income was $2.69 billion, or $0.36 per share, for the first six months of fiscal 2001, compared with pro forma net income of $1.71 billion, or $0.23 per share, for the first six months of fiscal 2000 -- an increase of 57%.

          Actual net income for the first six months of fiscal 2001 was $1.67 billion, or $0.22 per share, compared with $1.23 billion, or $0.17 per share, for the first six months of fiscal 2000.

          Cisco is cautious about the next six months, given that the rate of the slowdown in spending among service providers and certain enterprise markets, such as manufacturing, caught the company by surprise.

          "The next several quarters will be challenging," Chambers said.

          The third quarter will be flat to down 5%, and the fourth quarter will be flat with the third quarter, with some variability, said Cisco Chief Financial Officer Larry Carter. Fiscal 2001 will be up 40% over 2000, company executives said.

          Cisco is expecting growth to be on the low end of the 30% to 50% range for the next three to five years.

          On the positive side, Cisco's component availability issues appear to be behind it. Lead times for affected products, like the Catalyst 6500 LAN switch, are now down to four to five weeks, from eight to 12 weeks, Chambers said. Cisco is seeking to reduce them even further, to the two-to-three-week range.

          And service provider capital expenditures will continue to grow over the long term to keep pace with Internet growth, said Kevin Kennedy, senior vice president of Cisco's Service Provider line of business.

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