SAN JOSE, Calif. -- Internet equipment provider Cisco Systems Inc. continues to show strong quarterly gains as a string of acquisitions and internal development helps meet red-hot demand for Web and data-routing services.
For the three months ended April 29, the company, based in San Jose, Calif., reported net income of $662 million, or 9 cents per share, up from $636 million, or 9 cents per share, in the year-ago period.The numbers include $488 million in research and development write-offs as well as several other one-time items. Excluding those numbers, Cisco earned $1.03 billion, or 14 cents a share.
As has been a pattern, Cisco's earnings on Tuesday exceeded expectations by a penny a share. Analysts surveyed by First Call/Thomson Financial had expected the company to earn 13 cents a share, excluding charges.
Sales rose 55 percent to $4.92 billion from $3.17 billion a year ago, also topping Wall Street expectations.
"It's hard to poke holes in this; they had a really solid quarter," said Martin Pyykkonen, senior analyst at CIBC World Markets.
Investors weren't satisfied by the results, however, sending shares down $2.75, or 4 percent, to $60 in morning trading on the NASDAQ. Shares of Cisco have been out of favor all week after a story in Barron's magazine said the stock is overvalued and acquisitions will prove increasingly difficult because of escalating purchase prices of smaller companies.
Cisco has emerged as one of the most stable technology companies in the nation -- making it one of two of the most valuable companies in the world -- because of soaring demand for its switches, routers and fiber-optic equipment. They are used to direct communications traffic for both corporate computer networks and the broader, public networks run by telecommunications companies and Internet service providers.
"Given our size and the fact that the third-quarter has historically been the most challenging quarter, we were very pleased with the results," said chief executive John Chambers.
Cisco said it posted its best showing in the large business enterprise sector in two years as competitors exited the market and sales picked up in post-Y2K buying. The service provider business, including wireless networks, is expected to outpace core enterprise sales in coming years, company executives said.
Chambers said in a conference call the company maintains "a healthy paranoia" but believes it will maintain positions of dominance in all the segments it has invested in despite increasing competition and pricing pressures.
Chambers said in an interview that Cisco "is not constrained by lack of opportunity" and will continue acquiring firms to get into new businesses, partnering with others and internal development.
Analyst Pyykkonen noted Cisco is in a unique position because its market capitalization gives it enough cash to buy its way into a new market.
"For a company of its size to be posting this kind of top-line growth . . . you only get there by being aggressive," he said. "In an ideal world, you could sit back and do your own development, but Cisco's in a bit of a different situation here where fast pace and fast-pace acquistion is critical."
Cisco warned profits in coming quarters could be affected by a scarcity of parts, particularly for components of recently acquired companies that had not been expected to show fast growth before getting an infusion of capital from Cisco.