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Originally published Wednesday, February 13, 2013 at 10:00 PM

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Bellwether Cisco surprises with profit up 44%

Cisco Systems, the networking giant whose earnings are considered a technology bellwether, said that net income in the second quarter rose 44 percent to $3.1 billion, or 59 cents a share, from a year earlier.

The New York Times

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SAN FRANCISCO — Cisco Systems reported surprisingly strong results for its second quarter despite concerns about weak demand in some areas.

The San Jose, Calif., networking giant said profit in the second quarter rose 44 percent to $3.1 billion, or 59 cents a share, from the year-ago quarter.

The company said revenue climbed 5 percent, to $12.1 billion.

Excluding certain items, such as tax gains and stock-compensation expenses, Cisco had earnings of 51 cents a share.

The results exceeded the expectations of Wall Street analysts, who had projected earnings of 48 cents a share and revenue of $12.06 billion, according to a survey by Thomson Reuters.

“Cisco delivered record earnings,” CEO John Chambers said in a news release accompanying the results. “We are making solid progress towards our goal of becoming the number-one information-technology company in the world.”

Cisco has traditionally met, or slightly exceeded, Wall Street’s earnings expectations.

Its quarterly performances and forecasts are widely regarded as a way to assess the state of the technology industry. That’s because the company cuts a broad swath while selling its routers, switches, software and services to corporate customers and government agencies around the world.

In addition, Cisco’s fiscal quarters end a month later than for most other major technology companies, giving it additional time to assess economic conditions.

Chambers, who is respected for being able to predict economic trends, said what he is hearing from customers is giving him a sense of “cautious optimism.”

“We are starting to see a slow, steady upturn in terms of (the sales) pipeline,” Chambers told analysts during a Wednesday conference call.

Over the past two years, Cisco has reorganized, paring down much of its consumer business and refocusing on new technology initiatives, such as cloud computing.

In December, Chambers announced plans to move Cisco from just selling gear that routes Internet data into the development of highly networked systems of sensors and data-analysis machines. That plan, which involves working closely with large companies and governments, remains in its early stages.

Sales of regular networking equipment to governments remains a key part of Cisco’s business. Analysts had been concerned that poor demand from governments, along with economic jitters in Europe, could hurt Cisco’s performance.

“I do believe governments have the potential to trip us up here,” Chambers said.

Reflecting the murky outlook, Cisco sought to ensure that the financial bar for its current quarter, which ends in April, remains relatively low.

Management projected revenue will increase 4 to 6 percent from last year, assuming a deal to sell its home-networking business closes on schedule next month.

Cisco is selling that business, including the Linksys brand, to Belkin, a maker of smartphone cases and computing accessories.

At the midpoint of that projected range, Cisco’s revenue for the current quarter would be $12.16 billion, about $60 million below analyst forecasts. The company expects adjusted earnings of 48 to 50 cents a share, in line with analysts’ predictions.

Investors evidently hoped for more compelling signs of a resurgent economy. The company’s stock shed 34 cents, or nearly 2 percent, to $20.80 in extended trading, surrendering some of the recent gains that had propelled the shares to a two-year high earlier this week.

Material from The Associated Press is included in this report.

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