Cisco Returns to Cautious Stance

Updated from August 10

Cisco (CSCO) shares slumped early Wednesday, after the company posted a solid fiscal fourth-quarter profit Tuesday, but also returned to a cautious stance about future results.

The company surprised investors by saying it expects fiscal first-quarter sales to be flat to 2% above fourth-quarter numbers. That's toward the low end of Wall Street's expectations. Cisco shares dropped 6% in after-hours trading on the comment.

For the quarter ended July 31, the San Jose, Calif., communications equipment giant earned $1.38 billion, or 20 cents a share. That's up from the year-ago $982 million, or 14 cents a share.

On a pro forma basis, excluding certain costs, latest-quarter earnings were 21 cents a share. Revenue rose to $5.93 billion from the year-earlier $4.7 billion. Analysts surveyed by Thomson First Call had called for earnings of 20 cents a share on sales of $5.9 billion.

In premarket action Wednesday, Cisco fell $1.46, or 7.1%, to $19. As recently as June, shares were worth about $24.

"This was a record-breaking quarter for Cisco on a number of financial and operational levels, including generating the highest GAAP and pro forma net income and earnings per share in the company's history," said CEO John Chambers. "The investments we've made in emerging markets around the world, coupled with continued innovation in our core business and advanced technologies, are generating record results."

The quarter brought mostly good news. In a postclose conference call, Chambers said sales to U.S. big businesses grew about 15% from the previous quarter, showing a steady improvement in an area where customers have been notoriously tight-fisted.

The company said its book-to-bill ratio, which measures the proportion of sales to shipments, was 1 for the quarter, a neutral sign. But Cisco said it is sticking with plans revealed last quarter to hire some 1,000 people over the balance of the year, ending a years-long hiring freeze brought on by the tech spending slowdown.

The improvements were certainly good to Chambers, whose salary has been reinstated at $340,000. The shifts ends a three-year-long salary fast by the Cisco chief, who vowed to forgo bonuses and take a $1 annual salary after the company's business collapsed in May 2001. Chambers has had to make due with millions of dollars' worth of stock options in the meantime.