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Cisco Sales Up 38 Percent

Networking company Cisco Systems recorded a first-quarter profit Wednesday that beat analysts' expectations by a penny a share as sales surged 38 percent.

The company (CSCO), a leader in making devices to connect computer networks, said it earned $559 million, or 34 cents a share in its first quarter.

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That compares with year-ago profits of $416 million, or 26 cents a share. Analysts surveyed by First Call expected Cisco to make 33 cents a share, but many on Wall Street predicted the networking company would surpass consensus estimates.

The company's earnings didn't include write-offs for research and development and acquisition expenses, which the company said would have dropped earnings to $518 million, or 31 cents a share.

Cisco's earnings were powered by sales of $2.59 billion, up 38 percent from 1997 first-quarter sales of $1.87 billion. Many analysts expected revenue growth of 35 percent.

The company's gross margins, however, fell from last quarter. Gross margins were 65.5 percent vs. 65.7 percent last quarter due to product mix changes and lower pricing from competitors, Cisco executives said. Local Access Network switching price cuts in particular hurt gross margins, the company said.

Gross margins will likely continue to decline over the next few quarters as competitive pricing continues, Cisco said.

Industry growth should be 30 percent to 50 percent annually in "good economies" like Europe and the United States, the company's President and Chief Executive John Chambers said. Cisco said 80 percent or more of its business is in those two regions.

Cisco's Japanese growth was virtually flat and the company remains "cautious" about Asia over the next several years, Chambers said.

Cisco was cautious on industry growth, maintaining what Chambers called a "healthy paranoia" about dilemmas like global economic issues slowing spending, Year 2000 issues and price competition.

But, he added, "We are invested in Asia for the long run."

Analysts had estimated the company's service provider growth would lead itbusiness this quarter, which Cisco confirmed. Service provider orders rose about 50 percent from last year, pushed by broadband infrastructure and broadband DSL and cable bookings.

The company said its enterprise markets' revenue growth could be 10 percent slower than other segments of Cisco's business over the next several quarters. Slowing spending by global financial institutions was cited as a major reason for less growth in Cisco's enterprise area.

Written By By Tiare Rath

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