_____Latest Earnings Reports_____ • Carlsberg Posts 77 Percent Decline (Associated Press, May 8, 2002) • Commerzbank Sees 1Q Profit Decline (Associated Press, May 8, 2002) • Investments Hurt NTT DoCoMo Profit (Associated Press, May 8, 2002) • Other earnings reports _____Related Features_____ • Latest List of Layoffs Latest news and updates Select an Industry Biotechnology Defense Energy Financial Services Food Hospitality Insurance Internet Legal Media Pharmaceuticals Retail Telecommunications Transportation E-Mail This Article Printer-Friendly Version Subscribe to print edition

By Christopher Stern
Washington Post Staff Writer
Wednesday, May 8, 2002; Page E03

Cisco Systems Inc., the world's largest manufacturer of networking equipment, yesterday reported a profit of $729 million, or 10 cents per share, for the past three months, and chief executive John Chambers said there are some tentative signs that the tech economy is beginning to stir.

Investors immediately warmed to the results that were announced after the close of the market yesterday. Cisco stock jumped in after-hours trading as much as 12 percent, or $1.62, to $14.70 a share.

"We are not calling a turnaround, but we are seeing some indicators that are of interest to us," Chambers told analysts and investors. Among those indicators are increased spending by the federal government and the manufacturing sector.

Cisco reported revenue in its fiscal third quarter of $4.8 billion, up from $4.7 billion in the same period in 2001.

But what a difference a year makes. Twelve months ago, Cisco reported a loss of $2.7 billion (37 cents per share) after writing off more than $2 billion in inventory. The company then laid off more than 8,500 employees, or about 18 percent of its workforce.

Analysts and investors keep a close eye on Cisco because it provides Internet and networking gear to businesses around the world.

"If Cisco does well that means that thousands of companies have begun to step up their spending," said James N. Kelleher, an analyst at Argus Research Corp.

Chambers said some of those firms have the money to spend on its products but are reluctant to write a check until there is further proof the economy is rebounding. "The CEO mentality out there is 'show me,' " Chambers said.

One of Cisco's strengths is that it sells most of its networking equipment to companies other than big telephone firms. Rivals such as Nortel Networks Corp. and Lucent Technologies Inc. continue to suffer from a decrease in spending by companies such as Verizon Communications Inc. and SBC Communications Inc.

Although revenue was up only 2 percent over the second-quarter level, Chambers told analysts that any improvement could be viewed as a positive sign because the firm normally experiences a seasonal downturn in the third quarter.

Chambers also told analysts that business is likely to pick up in the next few months. In the fourth quarter, he said, "you have normal seasonality working in our favor and a little positive momentum."

Chris Sessing, an analyst with Crowell, Weedon & Co., said Cisco had beat his firm's revenue estimate for the third quarter by several hundred million dollars. Excluding costs such as payroll taxes and stock options, Cisco reported earnings of 11 cents per share. That exceeded analyst forecasts of 9 cents per share.

Sessing said that he was impressed by the company's improved results through cost cutting but that he would now like to see significant revenue growth. "At some point the revenue has to kick in," Sessing said.

Denise Sangster, an analyst at Global Touch Inc., said Cisco is being hurt by ongoing economic uncertainty, fueled in part by worries about world events. "People are very concerned about what is going on in the Middle East," Sangster said.

But Sangster estimates the company only has three weeks worth of inventory on hand, down from a nine-month supply a year ago. That should help it sell new, more profitable equipment when the economy improves.