Cisco Systems Inc. (CSCO), the largest maker of communications gear to direct traffic over the Internet, on Tuesday said quarterly earnings rose, but shares fell in after market trading amid concerns about weak revenue and rising inventory.

Revenue in the fiscal second quarter rose about 12 percent to $6.06 billion, falling just shy of analysts' average forecast for sales of $6.12 billion, according to Reuters Estimates. Cisco (search) also forecast current quarter revenue would miss Wall Street expectations, but indicated that its fourth quarter would show strength.

The second quarter marked the third in a row that Cisco's revenue failed to grow as robustly as Wall Street hoped. Though the company cited overall strength in its core routing and switching business, it saw weakness in government accounts and slowness in international markets such as France, Germany and Japan.

Inventory turns were 6.5, even with the first quarter, and up from 6.4 in the fourth quarter.

"In line EPS (earnings per share), light on revenue, inventory levels up again," said JMP Securities analyst Sam Wilson, who characterized the results as "mediocre."

"The stock's got a floor underneath it because the valuation is relatively low; however there's no real compelling reason to buy," he said, adding that shares in the technology sector may react with lackluster performance in Wednesday trading.

Cisco said profit rose to $1.4 billion, or 21 cents a share, in its fiscal second quarter ended Jan. 29, from $724 million, or 10 cents a share, a year earlier. Net results benefited from a year-earlier accounting change.

Prior-year earnings before the effect of the accounting change were $1.3 billion, or 18 cents a share.

Earnings, excluding amortization and other items, were $1.5 billion, or 22 cents per share, hitting the average analysts' estimate, as polled by Reuters Estimates.

The company bought back 140 million shares during the quarter at an average price of $19.30, for an aggregate total of $2.7 billion. Those purchases brought Cisco up to $23 billion worth of buybacks since September 2001. It has a remaining buyback authorization of $12 billion.

For the current quarter, Cisco said it expects revenue to be flat to up 2 percent over the second quarter. Analysts' estimates for the fiscal third quarter had assumed revenue growth of just under 3 percent.

For fiscal 2005, Cisco expects revenue growth to be about in the middle of its long-term forecast range of 10 percent to 15 percent. The average estimate for fiscal 2005 from Reuters Estimates assumes year-on-year revenue growth of about 12.6 percent.

"Most people view (the economy) as middle of the fairway, but you're beginning to see a slowly increasing degree of cautious optimism," Cisco Chief Executive John Chambers (search) said in an interview. "Time will tell if that translates into a higher degree of capital spending."

Cisco has been attempting to moderate slower growth in its traditional routers and switches with a push into advanced technologies such as phone calling over the Internet and sophisticated network security systems. The company said that all six of those areas posted revenue growth of more than 30 percent.

In the fiscal third quarter, Cisco said it expects gross margins of "approximately" 67 percent, compared with 66.9 percent in the second quarter.

"The Cisco numbers are predictably in line, but the stock is off a little bit owing to the continued high level of inventory," said Barry Randall, manager of the $100 million First American Technology Fund, which owns Cisco shares.