Cisco Keeps on Rolling

Convergence strategy is the new mantra.
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Another quarter, another good set of results by

Cisco

(CSCO) - Get Report

. The plumber of the Internet has chalked up another winning quarter, beating analysts' estimates.

The San Jose, Calif., networking giant earned $606 million, or 36 cents a share, for its second quarter ended Jan. 23. Last year, Cisco earned $457 million or 29 cents a share. Results excluded a charge of 17 cents a share related to acquisitions. Revenue for the period rose 40% to $2.83 billion from $2.02 billion a year ago.

Cisco grew revenue 50% year over year in the area that matters most -- furnishing Internet Service Providers, or ISPs, and telephone carriers with large switches, routers and other network products. Again, CEO John Chambers predicted that carriers will shift their telephone traffic onto Internet-based systems. However, Cisco expects to wait three to four quarters for its Internet telephony contracts to generate significant revenue.

"We recognize that carriers must successfully deploy" the products if Cisco is to make its fortune on Internet telephony, executive vice president Don Listwin told listeners on a conference call this evening. Cisco believes that engineers worldwide are so focused on developing the gangly Internet that soon it will be reliable enough to carry voice calls. For now, quality of transmission remains unproven. The convergence of phone systems and the Internet will take time to evolve.

"We are early on the curve," says analyst Bill Rabin with

J.P. Morgan

. Cisco has signed numerous early customers;

MCI Worldcom

(WCOM)

,

Swisscom

,

Japan Telecom

and

Sprint

are all installing Cisco's new MGX switches on their networks. "It's

Cisco's primary tool for convergence," says Rabin.

Cisco's Listwin downplayed the heightened competition it faces from old telecom supplier

Lucent

(LU)

, which is set to acquire Cisco's rival

Ascend

(ASND) - Get Report

. He believes Lucent will face challenges integrating disparate cultures, separate headquarters on opposing coasts and overlapping product lines. "We are assuming

the merger will be successful and are preparing ourselves appropriately," Listwin says.

Cisco believes it still holds the edge over Lucent because it specializes in Internet Protocol, while Lucent still draws most of its sales from telephone equipment.

On the downside, Cisco's old growth engine -- sales to corporations -- is slowing down. Cisco said corporate sales grew 10% slower than Cisco's overall sales. Price competition in the corporate market helped Cisco's gross margins ease slightly to 65.2% from 65.5% last quarter.

In its conference call, Cisco did not comment on any plans to split its stock, a possibility described in an earlier

TSC

story.