Cisco Systems Inc reported Tuesday that quarterly revenue dropped 4 percent to US$4.6 billion, but profits jumped 35 percent because of aggressive cost cutting.
Cisco, the No. 1 maker of gear for directing Internet traffic, said net income for its third fiscal quarter was US$987 million, or US$0.14 per share -- compared with US$729 million, or US$0.10 per share for the third quarter of fiscal 2002.
After adjusting for acquisitions and other one-time costs, net income was US$1.1 billion, or US$0.15 per share -- compared with US$838 million, or US$0.11 per share, for the same quarter last year.
The adjusted earnings exceeded the expectations of analysts polled by First Call. They expected San Jose-based Cisco to earn an adjusted US$0.14 per share in the third fiscal quarter, which ended April 26.
"It's a repeat of what we saw last quarter, though I sense a little tinge of optimism," said Meta Group analyst David Willis. "Nobody else is picking up Cisco's business, so whenever people do buy again, they're likely to go to Cisco."
Cisco wooed new customers last quarter including Cap Gemini Ernst & Young, Cancer Therapy and Research Center and the NBA's Memphis Grizzlies, but total sales dropped.
The company sold US$4.6 billion worth of routers, switchers and other networking hardware, software and consulting services, down from the US$4.8 billion it sold in the same quarter last year.
The value of Cisco's investments also fell. The company had US$20.3 billion in cash and cash equivalents at the end of last month, down from US$21.2 billion at the end of the previous quarter.
In response to sluggish sales, Cisco pared total operating expenses to US$2.03 billion, compared to US$2.19 billion in the same quarter a year ago.
The company slashed research and development spending to US$703 million in the quarter, compared to US$807 million in the same quarter last year. It also shaved sales and marketing costs to US$1.02 billion, down from the US$1.06 billion in the same quarter of last year.
Cisco executives said they were encouraged by US$1.3 billion in cash flow and the increase in net income, but warned it was too early to predict a rebound. Over the past three years, Cisco and other hardware providers have lost thousands of customers -- particularly dot-coms and other technology startups that have collapsed since the initial stock market slide in the spring of 2000.