Cisco Profit Climbs 4.4% on Sales Growth

Chief Sees Uncertainty Over Economy Lingering For Next Few Quarters

Cisco Systems Inc. posted a 4.4% increase in profit on sales growth of nearly 10%, bucking worries that the slowing economy would hold down demand for high-tech products.

The company, the world's biggest maker of networking hardware, indicated sales growth is likely to slow in the next two quarters.

John Chambers, Cisco's chief executive, predicted that economic uncertainty will remain for the next few quarters. As a result, the company -- which usually offers a 12-month forecast -- only offered financial guidance for the next two fiscal quarters. Cisco projected revenue growth in the current period in the range of 8%, and fiscal second-quarter growth of about 8.5%.

Mr. Chambers said he isn't changing the company's long-term forecast for growth in the range of 12% to 17%. "Our confidence in our longterm revenue growth remains the same," he said during a conference call with analysts.

Analysts have been waiting for Cisco's numbers for signs that economic woes are spreading. In the past few years, when corporate customers have reduced spending on networking gear, the impact on Cisco has tended to be offset by rising Internet traffic that prompted cable and telephone companies to buy more hardware.

Credit Suisse analyst Paul Silverstein said in a recent report that AT&T Inc. and other telephone companies are trimming their 2008 spending budgets, which he predicts will hurt Cisco. The expected spending cutbacks led Mr. Silverstein to downgrade the networking company's stock from "buy" to "neutral."

Mr. Chambers was among the first high-tech executives to acknowledge a looming slowdown, warning in late 2007 that U.S. spending on networking might be "lumpy" for much of this year. In early July, Mr. Chambers fueled further jitters by suggesting that Cisco may not see an upturn in corporate technology spending until early next year.

To offset some of the pullback, Cisco has broadened its product line beyond an original speciality in switching and routing devices. The company has been among the most aggressive acquirers in the high tech industry, assembling engineers and programmers from start-ups to push further into markets such as social networking, online video and conferencing.

In the latest quarter, Cisco's business in switches and routers posted 5% growth and 8% growth, respectively. The two product categories, which account for nearly 60% of Cisco's overall revenue, have usually grown at percentage growth rates in the mid-teens. Still, the 5% growth for switches is a slight improvement on the 3% growth rate in the fiscal third quarter.

For the quarter ended July 26, the San Jose, Calif., company reported net income of $2.01 billion, or 33 cents a share, compared with $1.93 billion, or 31 cents a share, in the year-earlier quarter.

Revenue rose to $10.4 billion from $9.4 billion. Cisco did particularly well in emerging markets, with revenue growth of 42% compared to 5% in the North American market.

By: Bobby White
Wall Street Journal; August 6, 2008

J.C. Penney's Profit Declines 36%

Cost-Control Effort Helps Boost Shares; Weak Sales Likely

J.C. Penney Co. said second-quarter profit fell 36%, but the retailer's shares moved higher on cost controls and inventory management.

Penney also gave a third-quarter earnings forecast that missed analysts' estimates as it expects back-to-school sales to be weaker than last year and to occur later.

Even so, the Plano, Texas, retailer's shares rose Friday. In 4 p.m. composite trading on the New York Stock Exchange, they rose $3.11, or 8.4%, to $39.94.

Net income fell to $117 million, or 52 cents a share, in the three months ended Aug. 2, from $182 million, or 81 cents, a year earlier. The company said last week that sales dropped 2.5% to $4.28 billion in the quarter.

Penney said it expected per-share profit to be 70 cents to 75 cents a share for the third quarter, with sales forecast to decline at a rate in the low-single digits. It said it wasn't providing a full-year outlook because of economic uncertainty. Analysts' consensus profit estimates were 50 cents and 76 cents a share for the second and third quarters, respectively, according to Thomson Reuters.

Chief Executive Mike Ullman said he is keeping inventory lean and managing expenses to lessen the impact of declining sales, a strategy being repeated across the industry as consumer spending slows.

Penney "is effectively managing its inventory position," said Morgan Stanley analyst Michelle Clark. "We continue to believe the retailer will drive inventory reductions for the balance of this year, and we expect reduced merchandise margin pressure."

Mr. Ullman also said he has launched the company's biggest back-to-school product-unveiling with brands such as Decree, Dorm Life and Fabulosity, a collection designed by Kimora Lee Simmons.

"As we look into the second half of the year and into 2009, we expect the environment to remain difficult as we are seeing now," Mr. Ullman said on a conference call. He said the company's expected slower back-to-school results were factored into its third-quarter forecast.

Analysts said retailers' back-to-school sales overall have gotten off to a slow start. Teen retailer Abercrombie & Fitch Co. lowered its full-year profit forecast Friday.

These slow back-to-school results are a result of J.C. Penney's lack of electronics inventory. The stores do not sell laptops, electronics, or back to school computers, which in turn has hurt the company. If these items were to be sold in addition to back to school apparel, it could help level the company's sales and slow their decline.