Networking Giant Cisco Wants to Become Household Name

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After setting records for profit and revenue, Cisco Systems Inc. (CSCO) is taking on a challenge that may be more formidable than pleasing Wall Street: The networking gear provider plans a consumer advertising push aimed at getting average Internet users — not software programmers and hardware administrators — to recognize and even embrace the brand.

"The goal is to have a strong brand image with the consumer that makes them think about how we change their life experience," said Cisco President and CEO John Chambers, who emphasized that the campaign would not be a "technical, geeky thing" but an idea that resonates with the average consumer. "Cisco is the gateway to your future."

Making Cisco accessible to non-technophiles is a tall order. The company is one of the world's largest makers of routers, switches and other devices that connect computers to the Internet.

In 2003, the San Jose-based company acquired Linksys, which is now the company's home networking division and sells gear such as Internet voice adapters, which allow people to make phone calls using broadband connections.

In February, Cisco completed the $6.9 billion acquisition of Scientific-Atlanta Inc., the world's second-largest seller of cable television boxes after Motorola Inc. (MOT)

Cisco's corporate customers range from Silicon Valley startups to multinational conglomerates such as DaimlerChrysler AG (DCX). Chambers said he hopes that Cisco eventually becomes a brand name that's synonymous with Internet connectivity. Cisco also produces digital subscriber line and cable broadband equipment, Voice over Internet Protocol telephone service products and network management software.

"You can have your network at home, you go into car and it rolls over to wireless network, you go into your business and it rolls over into your business network," Chambers said. "Cisco is the only player that combines all the products and goes across all customer segments."

Cisco reported impressive fourth-quarter results Tuesday, but significant accounting changes made it see as if profit was flat compared to the same quarter last year.

Net income for the three months ended July 29 was $1.544 billion, or 25 cents per share, compared with $1.540 billion, or 24 cents per share, in the fiscal fourth quarter of 2005.

The newest results would have shown an increase of nearly 22 percent in net income, except for $152 million in compensation expenses related to employee stock options and employee stock purchases.

Had those accounting changes been in place last year, Cisco would have reported fiscal fourth quarter profit of $1.265 million, or 20 cents per share, in 2005.

Quarterly sales at Cisco rose to $7.98 billion from $6.6 billion in the same quarter of 2005.

"The growth and profitability are impressive, particularly since the overall market hasn't been stellar," said Barry Jaruzelski, vice president of the communications and technology practice at Booz Allen Hamilton. "It's not shabby in an absolute sense, either. It's a pretty positive story."

Cisco has managed to stay above the stock-options backdating scandal that has gripped at least 80 companies nationwide, including Cisco rival Juniper Networks Inc. (JNPR)

The companies are investigating whether they retroactively pinned the option's exercise price to a low point in the stock's value — a practice that makes the rewards more lucrative.

If companies backdate options without accounting for the move, it can cause profits to be overstated and taxes to be underpaid. It also exposes companies to possible fraud charges.

"Given the recent attention to this issue, Cisco thoroughly reviewed its issuance of stock option grants and can state with confidence that we did not change stock option grant dates to give a lower exercise price," said Chief Financial Officer Dennis Powell.

Excluding options and other expenses, Cisco earned $1.9 billion, or 30 cents per share, compared with $1.6 billion, or 25 cents per share in the fiscal fourth quarter of 2005.

On that basis, which doesn't conform to generally accepted accounting principles, Cisco easily surpassed the mean estimate of 28 cents per share, or $1.76 billion on sales of $7.92 billion, according to a survey of analysts by Thomson Financial.

Cisco earned $5.6 billion, or 89 cents per share, in the 2006 fiscal year on sales of $28.5 billion. Excluding special expenses, Cisco earned $6.9 billion, or $1.10 per share for the year.

Wall Street was expecting the company to earn $6.74 billion, or $1.08 per share, on annual sales of $28.42 billion.

The results were released after financial markets closed. Cisco shares lost 12 cents, less than 1 percent, and finished the regular session at $17.29 on the Nasdaq Stock Market. The stock gained $1.65 or 9.52 percent in after-hours trading.