Cisco sales down, profit up

Gross margins. (Or is that grotesque?)

Cisco Systems squeezed 50 per cent more profits from Q2 profits, compared with the same period last year, despite declining revenues. The networking equipment vendor expresses caution about an early return to recovery for the struggling network equipment sector.

For the three months ending January 25, Cisco clocked net income of $991 million, compared with $660 million the same period last year and $618 million for its previous quarter.

Cisco's Q2 2003 net sales came in at $4.7 billion, down 2.1 per cent on revenues of $4.8 billion for Q2 2002. Pro forma net income for Q2 2002 was $1.1 billion, slightly ahead of analyst expectations.

Cisco attributed increased profits to improving gross margins, increased from 69.3 per cent in Q1 to 70.4 per cent in Q2. Internal cost cutting and lower equipment costs helped Cisco keep its head above water.

John Chambers, Cisco CEO, described current market conditions as "probably the most challenging environment the information technology industry has ever faced."

Cisco predicts Q3 sales will be flat to down by between two and three per cent. During a conference call, senior executives expressed concern about the effect of uncertainty about a possible war in Iraq may have on tech spending.

Cisco highlighted a managed services agreement with SBC Communications, an agreement for Lucent to resell Cisco's wireless networking kit to telcos, an IP telephony product and customer wins in China's service provider market as amongst its highlights for the quarter. ®

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