Cisco's Profits Rise Despite Sales Decline - InformationWeek

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3/4/2003
02:07 PM
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Cisco's Profits Rise Despite Sales Decline

Third-quarter sales fell about 4%, but cost-cutting helped send profits higher.

Cisco Systems had good news and bad news for investors on Tuesday when it reported its earnings for the third quarter of 2003. The world's largest maker of equipment for directing Internet traffic posted improved profits, approaching an all-time high, but sluggish technology spending caused sales to slip.

For the quarter ended April 26, Cisco posted net income of $987 million, or 14 cents per share, up from $729 million, or 10 cents per share, in the same quarter a year earlier. After adjusting for acquisitions and other one-time costs, net income was $1.1 billion, or 15 cents per share, compared with $838 million, or 11 cents per share, for the same quarter a year ago.

Net sales for the quarter were $4.6 billion, down 4.2% from $4.8 billion in the same quarter last year. Product revenue declined 4.8%, while services revenue was down 1.2%. However, Cisco pared spending to compensate for sluggish sales. It slashed research and development spending to $703 million in the quarter, compared with $807 million in the same quarter last year. It cut sales and marketing costs to $1.02 billion, down from $1.06 billion in the same quarter a year earlier.

In a conference call, CEO John Chambers called the quarter "solid" and blamed slipping sales on hesitant corporate technology spending. He also offered a muted forecast for the fourth quarter, saying that sales are likely to be flat or increase only slightly from the third quarter. "As our customers' business improves, so will our business," he said. "We remain optimistic for the long term and realistic for short term."

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