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Cisco beats Street
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August 8, 2000: 6:25 p.m. ET
Networking giant's 4Q revenue rises 61 percent, powered by Internet growth
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Networking equipment giant Cisco Systems reported fourth-quarter revenue and earnings Tuesday that exceeded analyst expectations, as the rapid growth of the Internet and Web-based applications continued to fuel the company's expansion.
Cisco reported after the close that its pro forma net income rose 69 percent to $1.2 billion, or 16 cents per share, from $710 million, or 10 cents per share, in the year-ago quarter. Analysts had expected the company to earn 15 cents per share, according to earnings estimate tracker First Call/Thomson Financial. The pro forma numbers don't include the impact of acquisition charges and gains made on minority investments.
The company's revenue rose 61 percent to $5.72 billion from $3.56 billion in the same period last year. Analysts had forecast that Cisco's (CSCO: Research, Estimates) revenue would be about $5.47 billion.
Cisco, based in San Jose, Calif., makes the equipment that forms the "plumbing" and backbone of the Internet. Based on its $460 billion market cap, it is one of the most valuable companies in the world.
At Tuesday's closing price of 65-11/16, Cisco stock is more than double its 52-week low of 28-1/16, and more than four times higher than it was in October 1998. Cisco shares rose 2-1/2 to 68 in after-hours trading, a level that is 128 times its fiscal 2000 earnings per share, a multiple considered very high for a company of Cisco's size.
 Net sales for fiscal 2000 were $18.93 billion, a 55 percent increase from $12.17 billion in the previous fiscal year. Pro forma net income for the full fiscal year was up 56 percent to $3.91 billion, or 53 cents per share, compared with pro forma net income of $2.52 billion, or 36 cents, for fiscal 1999.
No indications of a slowdown
Cisco President and CEO John Chambers told CNNfn Moneyline that sales were balanced across all geographic regions. (344KB WAV)(344KB AIFF)
"We see no indications in the marketplace that the radical Internet business transformation in practices like customer service, supply-chain management, employee training, empowerment, and e-commerce that is taking place around the world today is slowing -- in fact, we believe it is accelerating globally," said Chambers.
 "Sixty-one percent is tremendous top-line growth for Cisco," said Andrew Barrett, technology strategist at Salomon Smith Barney. "It shows that Cisco's growth rate is going to fall in line with what other industry players, such as Nortel, are reporting."
The company's gross margin dropped slightly to 64 percent in the fourth quarter from 64.6 percent in the same period last year. Operating income as a percentage of sales also dropped to 26.5 percent in the fourth quarter from 27.2 percent in the comparable period. Cisco's fourth-quarter net income was aided by an increase in non-operating income, such as income produced by interest and investments, to $197 million from $93 million in last year's fourth quarter.
Optical networking reaches $1 billion run rate
Cisco's management said on a conference call that the company's optical networking business is on track to have annualized revenue above $1 billion. Optical networking uses photons of light carried over fiber optic cable to transmit data, rather than electrical signals over copper wire. Cisco got into optical networking, which is expected to be a very rapid growth area, by acquiring Qeyton Systems, Pirelli Optical Systems, and Monterey Networks since August 1999. However, Cisco's optical networking business is still one-tenth the size of Nortel Networks' (NT: Research, Estimates) optical segment.
Cisco's revenue mix remained very similar to the third quarter, with routers accounting for 41 percent of revenue and switches accounting for 40 percent. A router is a device that routes electronic traffic over a network by reading the "address" of each packet sent along the network. Switching hubs are used to increase the amount of traffic a network can carry by making the best use of existing bandwidth. These switches allow a network to be separated into multiple smaller segments, each independent of the other.
Cisco also announced that Don Listwin, senior vice president and the fourth-highest ranking executive at the company, is resigning to become the CEO of a company in which Cisco has a minority investment. The name of that company will be released on Wednesday, Listwin said. Listwin had been at Cisco for a decade. 
-- Click here to send e-mail to David Kleinbard
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