Updated from July 6

Cisco ( CSCO) was rallying ahead of the bell Wednesday after posting stronger-than-expected fourth-quarter earnings, expanding its stock-buyback plan and making modestly optimistic first-quarter forecasts.

But the company also held the line on stock options, saying it won't join corporate America's rush to list them as a regular expense, and suffered a setback as its well-regarded financial chief took a step toward retirement.

Still, many investors clearly feel the selloff in the company's stock -- it's off 30% since last quarter's postearnings rally -- has been overdone and is just waiting to be reversed.

The company saw its revenue estimates trimmed but its profit forecasts raised by most of the Wall Street analyst community Wednesday morning. The shares were up 93 cents, or 7.7%, to $13 in Instinet premarket trading.

First Things First

CEO John Chambers said in a postclose conference call that Larry Carter, the networker's 59-year-old finance chief, would retire in May. Once Carter steps aside, Dennis Powell, vice president of corporate finance, will replace him.

Cisco shares plunged last week amid rumors Carter might quit or that the company might not certify its financials. The company said Tuesday it would file with the SEC next month, but the loss of Carter will likely sting the company, at least temporarily.

For his part Chambers, 52, quelled any notion that his departure might be in the offing also. The executive said he "wasn't even thinking" of retirement: "I plan to work here for quite a while."

The company's other remarks will surely be cause for Cisco-related optimism in the market at least for a while. For the fourth quarter ended July 27, the big maker of gear for the Internet said net income jumped to $772 million, or 10 cents a share, up from the year-ago $7 million, or less than a penny a share. Revenue rose to $4.8 billion from $4.3 billion a year earlier, leaving the latest-quarter figure a shade under the $4.9 billion consensus.

On a pro forma basis, excluding certain costs, latest-quarter earnings were 14 cents a share, beating the 12-cent Wall Street estimate quoted by Thomson Financial/First Call.

One New York hedge fund manager said he was encouraged by the company's solid earnings and high gross margins, but he said "the stock price will hinge on the company's guidance." The company said in the postclose call that it expects first-quarter numbers to be flat with to above fourth-quarter results. That's in line with what Wall Street expects.

Big Plans

Answering the oft-asked question of how it will use its huge cash hoard, Cisco rolled out a plan to boost its stock buyback to $8 billion from $3 billion. The company said it has actually bought $2 billion worth of its stock since it approved the plan last fall. Even so, Cisco shares have plunged more than 80% from their 2000 peak amid weak spending by its cash-strapped telco and Net customers.

Chambers stressed to analysts on the call that the $5 billion boost in share buybacks was intended to send a "very clear message to support the stock" and offset the dilution due to future employee stock option exercises.

Many observers have been concerned about the potential impact the expensing of employee stock options could have on the company's earnings. Both Chambers and CFO Carter said they would continue to offer the calculations of the stock option expenses in the company's annual report, but did not expect to take any charges related to those estimated expenses.

Chambers said he was in favor of the intent of stock option governance, but added that the current formulas are not accurate and that stock prices are too much of a moving target to offer a reasonable fixed charge.

Cisco said it remains liquid and that it is improving its efficiency. Cash, cash equivalents and total investments hit $21.5 billion at fiscal year-end 2002. Cash flow from operations was $1.6 billion for the fourth quarter and $6.6 billion for the full fiscal year 2002, the company said.

"We continued to focus on what we could control, and the results speak for themselves," CEO John Chambers said. "Our operational performance is on par with peak historical results, especially in the areas of gross margins and income as a percentage of revenue."

The stock rose 71 cents during regular trading Tuesday to $12.07.

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