Cisco's in profit, all's right with the world?

Peter Judge: IT managers have saved Cisco from disaster. We hope it rewards us all by leading the way to an era of dull, predictable financial results

After recent weeks, Cisco's financial results have come as a double relief to the industry. Why a double relief? Well, not only did the company make a reasonable profit but, seemingly unlike almost everyone else we can think of, it appears to be free of queries on its accounting practices.

On a far smaller scale, the UK press has been carrying stories of an end to dotcom gloom symbolised by the fact that Lastminute.com, the online travel site, which marked the high-water mark of the e-business bubble, is still in business and is even slated to make a profit next year.

But despite these signs, I think the jury is still out. Will we return to "normal"? Or was the continuing boom of the last few years just a medium term, one-off, event caused by the spread of new technology into society? Might we just shift to a new state where we have to adjust to less hype, less glamour and more just-getting-on-with-the business-thank-you?

Cisco's results could certainly indicate the latter. The company made a good profit, but has predicted that growth would be in single digits -- that is positively unheard of moderation for the IT industry.

In the quarter just gone (the last in Cisco's financial year) the company made $772m, a big leap from the same quarter last year, when the company's profit of $7m, on a turnover of $4.3bn, was as close to break-even as you could get.

Cisco, we all thought, was thoroughly tied up with the dot-com boom, giving equipment to start-ups, sometimes in exchange for equity or on long finance deals. So when that bubble burst, it was hit. And the telecoms bust which came hot on the heels of the dot-com bust was just as serious for Cisco, since many of the service providers who went under -- having over-estimated the demand for broadband services -- were heavily in debt for the Cisco kit they were using.

Cisco seems to have got away without being burnt too badly because in the end, despite claiming at the time that it virtually ran the Internet and built the dotcom boom single-handedly, it was actually much duller than that. It was an enterprise company and it will be using enterprise revenue to pull it out of the dotcom swamp.

Compared with erstwhile dot-com high-flyers like Nortel, Lucent and Marconi, Cisco turns out to have had a much higher proportion of business in the enterprise sector. That is, selling dull old corporate networks to dull old corporations.

Even though many IT managers have had to freeze expenditure, sales to the enterprise and to government are going up, said Chambers. So, congratulations IT managers, you helped save an industry giant! We can only hope that the company remembers this and continues to serve you well, instead of getting seduced by the next boom that comes along.

Apparently enterprise sales are going up by enough to compensate for the slump in service provider revenues. If true, this must be a substantial growth, because the service provider sector is still in a shocking state.

Service providers are not buying anything much at all. They are focussed first on simple survival. If they do buy anything they are most likely to snap up one of their bankrupt brethren (such as see KPNQwest, for instance) for as little money as possible, and will probably get all the nearly-new Cisco equipment they need that way.

It looks as if Cisco took the bad news as early as it could, writing off millions of dollars worth of inventory kit as soon as it saw the way the telecoms wind was blowing, and writing off the value of companies which it acquired whose value had slumped.

So last year's profits may have been slightly lower than they need have been, and the company has been able to bring back reserves to make this year's quarter look better. This is clever accounting, but not (as rumours suggested before the results came out) a source of scandal. The figures are (I am assured) transparent, and the company will be certifying its results with the Securities and Exchange Commission (SEC), by the end of September. Again, before the results came out, it had been suggested that the company might elect not to do this.

I think that Cisco's performance over the last year could well be an indication of how businesses will do in the post-boom, post-crash IT world. The company's share price has left its 2000 peak of about $80 far behind. Since 11 September last year, it has hit a low of $11, climbed to around $20, and settled back to about $13.

This is not the most thrilling stock market ride ever, and a million miles from the miraculous upward climb we used to get from Cisco. But in the last year, it represents a reasonable achievement. Cisco president John Chambers is predicting flat-to-single-digit growth in the next quarter. And what is more, he isn't resigning dramatically (as rumours said he might).

In the IT sector, this may be kind of dull, but I'd say it is very welcome news.

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