Cisco shares rise on positive earnings report

NEW YORK: Optimism about corporate desire for communications equipment helped boost Cisco Systems Inc. shares to a six-month high after the company's quarterly results quelled concerns about a spending slump.

Cisco's stock climbed more than 7 percent to close at $19.40 on the New York Stock Exchange in its biggest daily gain in more than two years.

It reported on Tuesday that second-quarter revenue rose some 10 percent over year-ago levels as customers spent more on network and security upgrades.

Cisco, which makes most of its revenue from selling routers and switches, products for directing voice and Internet data, said it sees sales for the current quarter growing 10 percent to 12 percent over the same quarter a year ago.

Some investors worried during the past few weeks that decreased spending in the technology and telecommunications sectors would dampen on the company's outlook.

"This tends to support the view that we're going to get strength in capital spending generally this year," said Michael Metz, chief investment strategist at Oppenheimer & Co.

CIBC World Markets analyst Steve Kamman noted that capital spending could include demand to upgrade local area networks, or LANs, over the next two-to-five years.

"An aging base (of LANs) sets up growing potential for a (gradual) wave of new investment -- with Cisco's various Advanced Technology offerings providing the likely catalyst to spark those upgrades," he said in note to clients.

Cisco's outlook was "exceedingly bullish," J.P. Morgan Securities analyst Ehud Gelblum wrote in a note to investors.

"In fact, we had a hard time counting all the ways (Chief Executive John) Chambers basically said Cisco is seeing strength in the marketplace, notably in the U.S. enterprise and commercial," Gelblum wrote.

The San Jose, California-based company's profit, excluding a charge for stock options, climbed a penny past Street estimates to 26 cents a share.

Net income slipped to $1.38 billion from $1.4 billion a year ago, though per-share earnings rose to 22 cents from 21 cents because of a smaller number of shares outstanding in the quarter.

Other network equipment makers and telecommunications company suppliers rode the wave that Cisco created.

3Com Corp. was up nearly 6 percent, while Redback Networks Inc. rose more than 8 percent. Lucent Technologies Inc. rose more than 1.5 percent to $2.70 and Cisco's archrival Juniper Networks was up more than a percent to $19.11.

The Dow Jones U.S. Telecommunications Equipment Index, which includes Cisco and rival Juniper Networks, was up more than 3 percent.

(With additional reporting by Emily Chasan and Jennifer Coogan)