Cisco beats forecasts, recovery under way

By Ritsuko Ando

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) posted a stronger-than-expected profit for its fiscal first quarter and said business was recovering as customers are buying more network equipment again after cutting back for the past year.

Chief Executive John Chambers' revenue forecast for the current quarter also exceeded Wall Street expectations, helping the shares rise 3.7 percent after-hours on Wednesday. He also said business conditions likely hit bottom in the early part of this year, its fiscal third quarter.

"There will be a good chance we will look back to see that Q3 was in fact the bottom, that Q4 was the tipping point, and the recovery started aggressively in Q1 of fiscal '10," he said.

Cisco is the world's top vendor of routers, switches and other network equipment used by global businesses, including telephone companies, as well as governments.

Many of those customers had put off large investment over the past year as tighter credit and an uncertain economic outlook made it hard for them to invest in big ticket items like high-end routers. Cisco's CRS-1 router, for example, costs around $500,000 to $1 million each.

But Chambers said many were beginning to invest again to cope with growing Internet traffic, which Cisco has forecast to grow fivefold from 2008 to 2013. The U.S. government's stimulus package is also helping, he said.

Revenue in the fiscal first quarter, which ended October 24, fell 13 percent from a year earlier to $9 billion. But that was up 6 percent quarter on quarter and higher than the average Wall Street forecast of $8.7 billion, according to Thomson Reuters I/B/E/S.

The company forecast fiscal second quarter revenue would increase by 1 percent to 4 percent from a year earlier, or a rise of 2 percent to 5 percent compared with the first quarter. The average Wall Street estimate for the second quarter had implied a revenue decline of 1.3 percent year on year.