Cisco Posts Gains in 3rd Quarter

Electronic News, May 17, 1999

San Francisco- BancBoston Robertston Stephens has reiterated its "buy" rating on Cisco Systems Inc. after the company reported strong fiscal 1999 third-quarter results.

"We are reiterating our buy rating on Cisco after the company reported third quarter results at the high end of published expectations," said Paul Johnson, managing director and senior communications/networking analyst at BancBoston Robertston.

Cisco last week reported revenues for its third quarter ended May 1 grew an impressive 11.3 percent sequentially, or about 40 percent year-over-year, to $3.15 billion, driven by strong demand for Internet traffic and new switching products. Net sales rose 44 percent to $3.15 billion from $2.18 billion in the same period a year ago. Net income rocketed to $646 million or 38 cents per share, from $65 million, or 4 cents per share. Excluding charges, Cisco's earnings jumped 33 percent from $484 million in the year-ago quarter.

Shares of Cisco jumped 6-7/8 on Nasdaq last Wednesday after the report was issued, finishing the day at 118-3/4, a far cry from 52-week low of about 44 in October 1998.

Net sales for the first nine months of 1999 were up 41 percent to $8.56 billion from $6.07 billion for the same period last year. Actual net income for the first nine months of 1999 was $1.45 billion, or 86 cents per share, compared with $859 million, or 54 cents per share, in the same period of 1998.

Bookings were strong in a traditionally challenging quarter, John Chambers, chief executive officer, told financial analysts at a phone conference.

In Europe, bookings from Germany, the United Kingdom, Italy and France grew over 15 percent sequentially. Russia was a concern and was said to be operating below last year's levels. In the U.S. market, bookings growth was up over 45 percent year-over-year; a similar growth rate applied to Asia-Pacific. In Latin America, results were mixed with Brazil "particularly challenging."

"The Internet economy continues to create unprecedented growth opportunities for people, companies, and countries on a global basis," said Chambers in a prepared statement. "The New World of Integrated data, voice, and video communications is at the center of these opportunities."

There are concerns, however. Among them: economic conditions, the Y2K challenge and the temptation for the government to over-regulate, most particularly in the area of acquisitions, Chambers said. In the most recent quarter, Cisco announced four acquisitions and closed one. The company was involved with nine acquisitions in 1998 and six in 1997. The list goes on. "The recent FASB activities and issues arising from attempts to expense stock options, change pooling rules and the way acquisitions are accounted for are a serious challenge to the new economy," he told financial analysts.

Separately, Cisco's board authorized its eighth stock split since its initial public offer in February 1990. The company will split its common stock on a two-for-one basis for shareholders of record on May 24, 1999. Split shares are expected to be distributed by the transfer agent on June 21. Two-for-one stock splits occurred in 1991, 1992, 1993, 1994 and 1996; and a three-for-two split occurred in 1997 and 1998.