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Cisco's latest results show signs of turnaround

FILE - This file photo taken Sept. 22, 2010, shows a Cisco UCS B440 M1 High-Performance Blade Server at a conference in San Francisco. Cisco System Inc., reports quarterly financial results Wednesday, Nov. 9, 2011, after the market close. FILE - This file photo taken Sept. 22, 2010, shows a Cisco UCS B440 M1 High-Performance Blade Server at a conference in San Francisco. Cisco System Inc., reports quarterly financial results Wednesday, Nov. 9, 2011, after the market close. (AP Photo/Paul Sakuma, File)
By Peter Svensson
AP Technology Writer / November 9, 2011

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NEW YORK—Cisco Systems Inc., the world's largest maker of computer networking gear, is showing signs of pulling a turnaround, exceeding analyst sales expectations for the second quarter in a row.

"We made very solid progress," CEO John Chambers told investors and analysts on a conference call Wednesday.

The San Jose, Calif., company posted net income of $1.8 billion, or 33 cents per share, in the fiscal first quarter, which ended in October. That was down 8 percent from $1.9 billion, or 34 cents per share, a year ago.

Excluding the cost of share-based compensation, tax effects and other items, earnings for the latest quarter were 43 cents per share, 3 cents above the average projection of analysts polled by FactSet.

Revenue grew nearly 5 percent from last year to $11.3 billion. That was about $230 million above analyst estimates.

Sales growth was broad and included a recovery in orders from U.S. government customers that had held off during the debt standoff this summer.

"It looks like things are slightly better in almost every important place," said analyst Tal Liani of Bank of America/Merrill Lynch.

Because of Cisco's broad base of customers and its focus on capital equipment, the company's results are sometimes seen as a barometer of business investment. But in the last year, problems specific to Cisco have muddied the picture. It's been slashing jobs and culling divisions this year in an effort to revive growth amid a slow economy and tough competition. For instance, it killed its Flip Video business less than two years after buying it.

For many years, Cisco's goal was sales growth of 12 percent to 17 percent per year. But it's had to adjust to a different market, and in September, it said the goal is now 5 percent to 7 percent growth for the next three years.

For the quarter that just started, Chambers said he expects a slightly better rate: revenue growth of 7 percent to 8 percent over last year. Analysts were expecting 7 percent rate.

Cisco shares rose 41 cents, or 2.3 percent, to $18.02 in extended trading Wednesday after the results came out. Earlier, the stock fell 70 cents, or 3.8 percent, to close at $17.61.

Chambers said orders grew through the quarter, just as it had in previous years, hinting at an economic environment that was relatively healthy. As for competitors, he indicated that they were the ones getting the worst of the matchup.

"You are seeing some aggressive acts, maybe even some acts of desperation, by some people to try to get orders. We have seen complete offers for a network to be given away," Chambers said.

Instead of Silicon Valley competitors like Juniper Networks Inc., Chambers singled out China's Huawei as "our toughest competitor four to five years out."

Huawei competes on price, and has been trying to break into the U.S. market for years. Chambers said his goal is to make things "hard" for Huawei in the U.S. while tackling them in their home market.