INTERCONNECTS

Cisco Systems Inc. said late Tuesday fiscal second-quarter profit fell slightly, hurt by the cost of employee stock options, even as the No. 1 maker of networking equipment saw sales rose 9.3% to $6.63 billion, slightly more than analyst expectations of $6.62 billion. In Cisco's biggest business, selling network-data switches to corporations, sales rose 12% to $2.67 billion. During the second quarter of fiscal 2006, Cisco completed the purchase of Cybertrust's Intellishield Alert Manager and the purchase of selected assets of Digital Fairway Corporation. "We're pleased with the solid revenue and earnings per share results Cisco delivered during its second quarter, but also especially pleased with our strong order momentum," said John Chambers, Cisco president and CEO. "This proves our strategy is working in terms of the convergence of voice, video and data along with our balanced approach to our customer segments, core and advanced technologies, business and technology architecture and key geographic theaters." "The network is enabling the next generation of IT," Chambers continued. "As all forms of communications are migrating into the network, it is transforming the way our customers create business models and design new forms of communication-based services for their customers, employees and citizens. Cisco anticipated the need for intelligence throughout the network five years ago, and today, those dividends are beginning to pay off." * Cash flows from operations were $1.9 billion for the second quarter of fiscal 2006, compared with $1.8 billion for the second quarter of fiscal 2005, and compared with $1.4 billion for the first quarter of fiscal 2006. * Cash and cash equivalents and investments were $15.0 billion at the end of the second quarter of fiscal 2006, compared with $16.1 billion at the end of the fourth quarter of fiscal 2005, and compared with $13.5 billion at the end of the first quarter of fiscal 2006. * During the second quarter of fiscal 2006, Cisco repurchased 42 million shares of common stock at an average price of $17.87 per share for an aggregate purchase price of $748 million. As of January 28, 2006, Cisco had repurchased and retired 1.7 billion shares of Cisco common stock at an average price of $18.13 per share for an aggregate purchase price of approximately $31.4 billion since the inception of the stock repurchase program. * Days sales outstanding (DSO) in accounts receivable at the end of the second quarter of fiscal 2006 were 35 days, compared with 31 days at the end of the fourth quarter of fiscal 2005, and compared with 33 days at the end of the first quarter of fiscal 2006. * Inventory turns on a GAAP basis were 6.5 in the second quarter of fiscal 2006, compared with 6.6 in the fourth quarter of fiscal 2005, and compared with 6.5 in the first quarter of fiscal 2006. Non-GAAP (pro-forma) inventory turns were 6.4 in the second quarter of fiscal 2006, compared with 6.4 in the first quarter of fiscal 2006. "Our second quarter results demonstrate solid financial execution and profitable growth," said Dennis Powell, Cisco chief financial officer. "As we manage the business for the long term, we have seen strength in many aspects of our business, particularly cash flow from operations of $1.9 billion, non-GAAP (pro forma) net income of $1.6 billion and an 18 percent year-over-year increase in non-GAAP (pro forma) earnings per share to $0.26." Business Highlights * Cisco announced a definitive agreement to acquire Scientific-Atlanta, Inc. * Comcast selected the Cisco CRS-1 Carrier Routing System for its integrated national delivery platform for broadband, communications, video entertainment and future cross-platform services. * Shanghai Telecom is expected to become the first telecommunications carrier in China to deploy the Cisco CRS-1 as part of its Cisco Internet Protocol Next-Generation Network (IP NGN). * Telstra, one of Australia's principal telecommunications companies, selected the Cisco CRS-1 to provide a carrier-class foundation for a converged "triple play" network. * Both Virgin Entertainment Group and Hannaford Bros. Co. selected the Cisco Intelligent Retail Network to increase store-level productivity and simplify operations. * The U.S. Department of Health and Human Services selected Cisco to work with other technology firms to develop prototypes for a Nationwide Health Information Network (NHIN) architecture. * Northrop Grumman Corporation teamed with Cisco to provide IP-based rich-media communications to the U.S. Department of Defense through the Defense Information Systems Agency (DISA). * During the second quarter, Cisco announced three planned additions to the advanced technology portfolio: 1) hosted small business systems, or Linksys One; 2) application networking services for enterprise customers; and 3) digital video, representing a significant amount of the company's planned acquisition of Scientific Atlanta for the consumer and service provider market segments. The first two are included in Cisco's Advanced Technologies revenue category this quarter.