Spending trend keeps Cisco bullish on sales

San Francisco : Cisco Systems Inc., the world's biggest maker of networking equipment, predicted that sales growth will accelerate this quarter as customers resume spending to deal with a surge in internet traffic.

Third-quarter revenue will rise 23 per cent to 26 per cent from a year earlier, the company said on Wednesday. That means sales will be at least $10 billion (Dh36.7 billion), topping the $9.49 billion average estimate of analysts in a Bloomberg survey.

CEO John Chambers, citing stronger sales in every customer segment and almost every region, said the global economy has entered a new phase of recovery. The San Jose, California-based company is a bellwether for technology spending because it dominates the market for routers and switches, which direct internet traffic.

"Almost every country is saying their momentum is better than it was before, and almost every business is saying it's more optimistic," Chambers said in an interview. "It shows a capital spending trend that's hard to deny, on a global basis."

Advanced mode

Second-quarter earnings, excluding costs such as stock-based compensation, rose to 40 cents a share, the company said.

Analysts had estimated 35 cents on average. Sales increased for the first time in a year.

"It probably was about as good a quarter as people could have hoped for," John Marchetti, an analyst with Cowen & Co. in New York, said.

He has an "outperform" rating on the shares, which he doesn't own. "Investors wanted to see multiple areas of Cisco's business benefit from the macro recovery. This was the first quarter since the recession began where I think you can say that."

Second-quarter net income rose 23 per cent to $1.85 billion, or 32 cents a share, from $1.5 billion, or 26 cents, a year earlier. Sales climbed eight per cent to $9.82 billion in the period, which ended on January 23.

Analysts had predicted $9.41 billion.

Gaining ground

As the economy rebounds, Chambers aims to make more acquisitions. The company bought Starent Networks Corp. for about $2.9 billion last quarter, gaining gear that wireless carriers use to help route mobile traffic.

Cisco ended the second quarter with $39.6 billion in cash, up from $35 billion at the end of fiscal 2009.

"This highlights Cisco's ability to execute through the economic cycle," Joel Levington, director of corporate credit at Brookfield Investment Management Inc. in New York said.

"Cisco's balance sheet remains pristine, setting the stage for additional acquisitions."