'Things getting better': Cisco tops forecasts; shares rise

SAN FRANCISCO — Cisco Systems (CSCO) shares rose Thursday after the company reported better-than-expected earnings and an impressive jump in revenue Wednesday — strong signs the tech recovery is under way, analysts say.
CEO John Chambers called it the first "meaningful revenue growth ... in a very long time," noting an upturn in corporate spending on tech products.

Cisco, the No. 1 Internet and network gear maker, posted revenue of $5.1 billion for its first fiscal quarter, topping Wall Street estimates.

The news also helped Ciso's competitors, including Juniper Networks (JNPR) and Nortel Networks (NT). Cisco shares have nearly doubled since March.

Cisco's net income of $1.1 billion, or 15 cents a share, was up from $618 million, or 8 cents a share, a year ago. Excluding special charges, net income of $1.2 billion rose from $1.0 billion.

Cisco is one of the best indicators of corporate technology spending because most of its products are bought by big companies. Its revenue had been nearly flat for a year and a half as tech spending lagged.

Now, "Things are getting better," says Pacific Crest Securities analyst Aalok Shah.

Cisco sees even better days ahead. In the current quarter, it expects revenue to be up 1% to 3% from the previous quarter.

Despite the good results, Chambers warned investors not to let expectations get out of control. Cisco's quarterly revenue is still more than $1 billion short of its strongest quarters during the tech boom. "Half the CEOs I talk to in the U.S. say they have some wind at their backs for the first time in a long time. ... An equal number of CEOs describe it as feeling better but not seeing the results yet," Chambers said.

Big tech companies that have reported earnings for the quarter have seen revenue rise an average of 7%, Zacks Investment Research says. Big companies overall have seen a 10% jump.

Another good sign for tech: The Semiconductor Industry Association said Wednesday that it expects worldwide chip sales to grow 19% to $195 billion in 2004. That would still be less than the $204 billion in chips the industry sold in 2000. But it's a sign of a comeback, analysts say.

"It's going to be a more orderly recovery, instead of zipping up to the atmospheric levels of 2000," says Wally Rhines, CEO of chip design software maker Mentor Graphics.

This year, chip sales are expected to reach $163 billion, a 16% increase from 2002's lackluster sales, the SIA says.