Updated from 4:09 p.m.Cisco ( CSCO) posted a solid third quarter Tuesday, beating Wall Street's earnings and sales targets. The company also offered solid fourth-quarter sales guidance and acquiesced to reformers who have long demanded that Cisco change its accounting for employee stock options. Cisco said it will count those expenses against its bottom line starting in the first quarter of fiscal 2006. On a pro forma basis, excluding certain costs, Cisco made 23 cents a share on sales of $6.19 billion in the latest period. Wall Street analysts had forecast a 22-cent profit on sales of $6.16 billion. For the quarter ended April 30, the San Jose, Calif., company made $1.41 billion, or 21 cents a share, up from the year-ago $1.21 billion, or 17 cents a share. Sales rose 10% from a year ago and 2.1% sequentially. Many Cisco watchers were encouraged by the company's flat gross margin performance. Cisco delivered a third-quarter gross margin of 66.8%, even with the prior quarter. Investors will be hoping that the plateau halts a recent sliding trend. Like other tech giants mired in a spending slump, Cisco has had to cut prices to win sales. The discounts caused Cisco's once-lofty 70.8% margins to narrow over the past two years. Riding growth in certain markets and gains at rivals' expense, Cisco says it sees top-line momentum continuing. CEO John Chambers told analysts on a conference call Tuesday that he expects the company to post sequential sales growth somewhere between 4% and 7% in the current fiscal fourth quarter ending in July. That range encompasses the current expectation for 5% sequential revenue growth for the current quarter. Chambers estimated that the company may have gained between 1 and 3 percentage points of market share in its router divisions, including core routers -- Internet traffic sorters that sit in the middle of a network -- and edge routers. The company had two new customers for its mega-router CRS-1, taking the total to 15 customers, up from a dozen in the prior quarter.
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.