2/4/2004 -- It wasn't quite a return to past glory, but Cisco Systems Inc.'s impressive second-quarter earnings, and second straight quarter of earnings growth, just might be a sign that the once-high-flying company -- and the once-booming networking sector -- are back on track.

Cisco posted a profit of $1.29 billion -- or 18 cents a share, ahead of an accounting charge -- for the fiscal second quarter, which ended January 24th. That beat Wall Street's expectations by a penny, and marked a 30 percent increase in year-over-year earnings. After the accounting charge, Cisco's Q2 earnings were $724 million, or 10 cents a share.

The one-time accounting charge was the result of Cisco's implementation of a new federal accounting rule, chief financial officer Dennis Powell confirmed during a conference call with analysts and reporters. Cisco consolidated Andiamo Systems Inc., a provider of storage area network switching technologies that it acquired in 2002, and recorded a non-cash cumulative stock compensation charge of $567 million, or $0.08 per share, Powell said.

During the second quarter, Cisco's revenue grew at a 15 percent clip over the year-ago period, from $4.7 million to $5.4 million. Switches led the way, accounting for 39 percent of revenue, followed by routers at 26 percent, and so-called “advanced technologies” – which comprise IP telephony, home networking, optical, security and storage networking – at 15 percent.

One encouraging sign was professional services, which accounted for 16 percent, or $848 million of revenue. Another was high-end routers: During the same call, Cisco CEO John Chambers cited strong revenue growth for the his company’s 10000 Series routers, which he said increased by “almost 100 percent sequentially” over Q1 2004.

Overall, Chambers sounded cautiously upbeat. “We are continuing to see a number of signs that could be interpreted, with the appropriate caveat, as optimistic,” he said. Chambers touted sequential revenue growth – 6 percent over Q1, 2004 – as the first such occurrence “in a long, long time.”

Elsewhere, Chambers reported encouraging feedback from enterprise decision-makers, who account for approximately 50 percent of Cisco’s sales. “Now most of the CEOs in the U.S. and around the world are slowly increasing their optimism of the global economic recovery, while this momentum, clearly, isn’t as strong as we would like, this is the second quarter in a row that we’ve seen positive year-over-year increases,” he noted.

For the current quarter, Cisco officials expect revenue to rise by one to three percent from the second quarter. In spite of its encouraging economic performance, Chambers said that Cisco will maintain its workforce at its present level, citing a productivity goal of $700,000 in revenue per employee.

Finally, Chambers stressed that although things are looking up, IT buyers are still skeptical. "Today's economy has gone from a 'Show me' economy to a 'How strong and how long will it last?' economy," he said. "CEOs are still more cautious than I would expect at this stage of the recovery in their spending and hiring." -Stephen Swoyer