Cisco Systems Inc, the world's largest maker of equipment to direct Internet traffic, said second-quarter profit rose 50 percent to a record as the company cut costs faster than sales declined.
Net income increased to US$991 million, or US$0.14 a share, from US$660 million, or US$0.09, a year earlier, the company said.
Revenue slipped 2.1 percent to US$4.71 billion, the first drop in a year. Revenue this quarter may fall as low as US$4.57 billion.
"They just keep nailing away at the cost side of their business and the effect of that is just improved profitability every quarter," said Christian Koch, senior technology analyst at Trusco Capital Management, which manages US$50 billion and holds about 6 million Cisco shares.
While Cisco sales have slowed since late 2000 amid a slump in demand for communications services, chief executive officer John Chambers has boosted quarterly profits in the past year by paring costs and keeping prices more than 50 percent higher than rivals.
That helped gross margin rise to a record in the second quarter, and Cisco predicted a similar level for the current period.
There is no sign of a pickup in customer spending, Chambers said.
"We are seeing even more conservative attitudes from CEOs than just one quarter ago," he said on a conference call.
Revenue this quarter will be unchanged to down 2 percent to 3 percent from the US$4.71 billion in the quarter ended Jan. 25, chief financial officer Larry Carter said on the call.
To compensate for declining revenue, Cisco reduced operating expenses 7.4 percent to US$2.05 billion in the second quarter. It cut manufacturing costs on products sold 28 percent to US$1.14 billion.
Gross margin, or the percentage of revenue after subtracting the cost of goods sold, rose to 70.4 percent from a previous record of 69.3 percent in the first quarter and from 61.7 percent a year earlier. Cisco predicted a margin of 68 percent to 70 percent in the quarter ending April 26.
Customers will increase equipment spending after their own sales and profit begin to rise again, Chambers said. Excluding acquisition-related costs, profit in the second quarter would have been US$1.08 billion, or US$0.15 a share, compared with US$664 million, or US$0.09, a year earlier, Cisco said.
"Our whole company is focused on profit contribution," Chambers said.
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