Cisco Banks on Web 2.0 as Net Income Drops

Cisco Systems Inc. is banking on collaboration enabled by Web 2.0 technologies to fuel long-term double-digit growth.

In the meantime, the equipment maker’s profits continue to drop because of a drag on the North American and European economies, even as India and China comprise the fastest-growing markets.

The California-based company late Tuesday reported a 5 percent decline in fiscal third-quarter profits, from $1.87 billion in the year-ago quarter to $1.77 billion in the three months ending March 31. That’s also compared to net income of $2.1 billion in Cisco’s second-quarter 2008 results.

Nonetheless, CEO John Chambers predicted 12 percent to17 percent year-over-year growth as Cisco heads into its fourth quarter. The key drivers will be adoption of applications such as unified communications and telepresence by enterprises and service providers, Chambers said.

The refrain is a familiar one from the head of Cisco. Chambers has said for at least a year now that Web 2.0 is the business model of the future. In April 2007, he said enterprises, not consumers, were moving to Web 2.0 technologies and that he would restructure Cisco around that framework.

The initiative seems to be working. The equipment maker’s fiscal third-quarter 2008 revenue came in slightly higher than UBS analysts’ expectations. Researchers had predicted sales of $9.73 billion – Cisco posted revenue of $9.79 billion. Those numbers were on par with second-quarter results, but up from the third quarter of 2007, when sales totaled $8.86 billion. Major new customers in the third quarter included AT&T, which bought Cisco’s TelePresence platform; Tata Communications, a service provider in Asia that also launched TelePresence service; and Bell Canada, which is deploying services including unified communications to businesses.

By the fiscal third quarter, Cisco had received orders for more than 500 units total of its TelePresence product, the company said. TelePresence combines video and audio over IP, and comes with features such as scheduling.

Cisco released its earnings after Wall Street shut down on Tuesday. Its shares closed at $26.33, up 5 cents, but had risen 1.44 percent in after-hours trading on the Nasdaq, to $26.71.

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