Cisco Systems Inc posted a stronger-than-expected profit for its fiscal first quarter and said a recovery in business was well under way because customers are investing in network equipment again after cutting back for the past year.

Chief Executive John Chambers forecast revenue for the current quarter at above Wall Street expectations and said that business conditions had hit bottom at least six months ago. Cisco shares rose 3.7 percent.

There will be a good chance we will look back to see that Q3 was in fact the bottom; that Q4 was the tipping point; and the recovery started aggressively in Q1 of fiscal '10, Chambers told analysts on a conference call on Wednesday.

Cisco is the world's top vendor of routers, switches and other network equipment used by global businesses, including telephone companies, as well as governments. Many of those customers had put off large investment decisions during the recession, but the results showed many were beginning to shift gears toward more spending again.

Revenue in Cisco's fiscal first quarter, ended October 24, fell 13 percent from a year earlier to $9 billion. But that was up 6 percent quarter on quarter and higher than the average Wall Street forecast of $8.7 billion, according to Thomson Reuters I/B/E/S.

The company forecast fiscal second quarter revenue would increase by 1 percent to 4 percent from a year earlier, or a rise of 2 percent to 5 percent compared with the first quarter. The average Wall Street estimate for the second quarter had implied a revenue decline of 1.3 percent year on year.

Cisco also said its board of directors authorized up to $10 billion in additional share repurchases, bringing its total outstanding repurchasing program to around $13.1 billion.

SLIGHT CAUTION

But Chambers was wary of forecasting beyond the current quarter, saying the economy could still be volatile.

While we expect a continued recovery into next year, it is important that expectations do not get ahead of market realities, he said.

Jefferies & CO analyst Bill Choi said the caution made sense.

In the near term, we have a lot of visibility, but no one is going to stick their neck out for 2010. Corporate budgets are being set just as we speak, or just close to getting done, he said.

Chambers said that, for now, he sees the market recovering, and said the U.S. government's stimulus package was starting to have an effect.

First-quarter net profit was $1.8 billion, or 30 cents a share, compared with $2.2 billion, or 37 cents a share, a year earlier. Excluding items, profit was 36 cents a share compared to 42 cents a share a year earlier, and higher than the average Wall Street forecast of 31 cents.

TANDBERG DOUBTS

Cisco has been stepping up acquisitions to ensure it grows faster than its rivals once the economy recovers. The company has expanded from its traditional focus on routers and switches to a broader range of products and services, including videoconferencing, cable set-top boxes and business software.

Since October, Cisco has announced plans to buy Norwegian video conferencing company Tandberg ASA for $3 billion, as well as a $2.9 billion deal for wireless equipment maker Starent Networks Corp .

It is unclear whether the Tandberg deal will close as some investors are demanding a higher offer.

I believe we will get this transaction closed, Chambers said, but added Cisco has walked away from deals before and that it was already offering a healthy premium.

Chambers also said Cisco intends to aggressively invest in new and adjacent markets this quarter. Adjacent technologies are those that can connect to, and bolster sales of, its existing products. Videoconferencing, for example, is seen driving sales of routers and switches as high-resolution Web videos require advanced network equipment.

This aggressive M&A strategy has helped Cisco grow from a company with annual revenue of around $40 billion from slightly above $1 billion when Chambers became CEO in 1995.

Cisco shares rose to $24.15 in after-hours trading from their Nasdaq close of $23.29. The stock has risen more than 40 percent since the start of the year.

(Additional reporting by Ian Sherr and Caroline Valetkevitch; editing by Bernard Orr, Tiffany Wu and Andre Grenon)

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