Stock Options Expenses Lower Cisco's Q1 Profits

Cisco President and CEO John Chambers called it a “solid” quarter, pointing to strong growth in the United States and Asia-Pacific regions.

“From a product perspective, more and more of our large customers especially in the enterprise, are committing to an architectural approach where routing, switching, security wireless, IP telephony, the home and data center products are at first loosely, then--we believe--tightly coupled over time,” Chambers said during a conference call. “There are very large advantages in terms of total cost of ownership, flexibility and time to market for customers under this approach,” he said.

Chambers also said Cisco&'s investments in the commercial, or SMB, market are paying off. Commercial product sales accounted for 25 percent of Cisco&'s business, with a year-over-year order growth percentage increase in the mid-20s, better than any quarter in the last several years, he said.

In addition, Chambers disclosed plans to unveil two new advanced technologies this calendar year. Cisco defines advanced technologies as product groups with the potential to grow into billion-dollar annual businesses. It currently counts six advanced technologies: wireless, security, VoIP, storage, home networking and optical networking.

For the first quarter of fiscal 2006, ended Oct. 29, Cisco reported earnings of $1.26 billion, or 20 cents per share, down from $1.40 billion, or 21 cents per share, the same quarter a year ago. That included a charge of 4 cents per share for stock-based compensation expenses, recorded for the first time during the quarter.

Going forward, Cisco expects a 4 cent-to-6-cent reduction in earnings per share per quarter as a result of stock options expenses, with a total reduction of 16 cents to 22 cents per share for fiscal 2006.

Revenue for the quarter hit $6.55 billion, up almost 10 percent from $5.97 billion the same quarter a year ago.

Routing sales for the quarter were $1.42 billion, up 13 percent year-over-year. Switching sales were $2.68 billion, up 3 percent, while sales from advanced technologies grew 25 percent to $1.21 billion. Revenue from services grew nearly 13 percent to $1.06 billion.

Financial analysts expected the company to report earnings of 24 cents per share on revenue of $6.58 billion, according to Thomson Financial/First Call. Excluding charges, Cisco earned 25 cents per share, beating analysts&' expectations by a penny.

For the second quarter, Cisco expects year-over-year revenue growth of 8 percent to 9 percent.

Shares of Cisco closed down 11 cents at $17.75 Wednesday prior to the announcement.