Cisco Bulls Charge

The stock jumps 6% on talk of strong demand.
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Cisco

(CSCO) - Get Report

shares soared Wednesday, as analysts see signs the networking giant is back on its feet.

The stock rose 6% in early action after a particularly rousing postclose conference call performance from CEO John Chambers. In the wake of the solid second quarter and the bullish-sounding order commentary, the reviews were glowing.

"Cisco's steady, balanced, faster-than-market growth is starting to look pretty good in the cold light of early '06," CIBC analyst Steve Kamman wrote in a note Wednesday.

Chambers sketched out an unexpectedly bright picture in the opening moments of a postclose conference call with analysts Tuesday. "Orders grew in the midteens, higher than we expected," said Chambers. "Momentum in orders makes us comfortable that we are winning against our competitors."

Though Cisco didn't raise its financial forecast for the two remaining fiscal quarters, investors and analysts sensed a renewed optimism from the chatty chief, who has spent the past few years offering up cautious outlooks within a broad-ranging global economic framework.

But Tuesday night, Chambers' sunny viewpoint was Cisco-centric. He said demand for networking gear grew each month of the quarter, providing the apparent evidence that sales momentum was building.

"We had a hard time counting all the ways Chambers basically said Cisco is seeing strength in the marketplace," J.P. Morgan Chase analyst Ehud Gelblum wrote in a note Wednesday. Gelblum rates Cisco a buy and raised his top- and bottom-line forecasts.

Toward the end of the conference call, analysts were wondering if Cisco had indeed begun to turn a corner after spending nearly two years in a sales rut.

Chambers, who has been criticized in recent months for failing to ignite Cisco's growth engines, seemed to be willing to take credit for anticipating the market's direction and making the right moves in preparation.

"A lot of big bets we made," says Chambers, referring to technology acquisitions like security, "look like they are going to play out well."

The $5.3 billion deal for cable TV gearmaker

Scientific-Atlanta

(SFA)

also fits well into the bulls' upbeat estimation of Cisco's new-found purpose.

"We continue to believe the SFA acquisition opens up new product cycles and reinvigorates topline as Cisco begins to play offense again in search of fresh growth drivers," Gelblum writes.

Cisco expects to close the SFA deal at the midpoint of the current quarter. The revenue contribution from SFA will be about $250 million in the current quarter and about $525 million in the fiscal fourth quarter. On the bottom line, Cisco expects adjusted income from SFA will be neutral to slightly net positive in the next two quarters.

Addressing a question about the contribution of the SFA products to Cisco's business, Chambers sees some upside.

"We are getting into service-provider accounts that we haven't been in before," says Chambers. Similarly, SFA sales are getting into Cisco's customers as the technologies converge. Chambers says these are the benefits of the "spillover" as entertainment traffic gets carried on the networks built with Cisco gear.

Cisco shares rose $1.12 to $19.21 in early trading Wednesday.