11/10/2004 -- It’s not quite déjà vu for Cisco Systems Inc, but yesterday, the networking giant announced that it had met—just barely—analyst expectations for its fiscal year 2005 first quarter earnings. More troubling still, Cisco posted declines in its bread-and-butter IP router business.

By most common benchmarks, Cisco had an excellent Q1: Its earnings were up by almost one-third (29 percent) over the same period last year, at $1.4 billion—or 21 cents a share—for the quarter. And with $6 billion in revenue, Cisco’s sales were up by 15 percent from the year-ago period, when the networking giant generated $5.1 billion in sales. Cisco even grew its revenues—albeit by 0.8 percent—from a very strong performance in Q4 of fiscal 2004 ($5.9 billion).

Nevertheless, Cisco’s impressive performance wasn’t impressive enough: The networking stalwart exactly met earnings expectations of 21 cents a share.

For almost any other technology company, that might be fine. But for one-time high-flyer Cisco—which nevertheless grew its earnings for the fifth consecutive quarter—that’s a disappointment.

During a conference call with investors, CEO John Chambers emphasized the positive aspects of the quarter, of which there were several: Cisco once again posted strong earnings and revenue numbers, and notched its 10th consecutive quarter of $1 billion or more in earnings.

At the same time, Chambers acknowledged, Cisco’s core IP router business was flat during Q1 of fiscal 2005: Router sales accounted for just 21 percent of Cisco’s revenue, down from 24 percent in the year-ago period, and down 4 percent from the torrid pace (25 percent) Cisco set in Q4 of 2004.

Chambers positioned Cisco’s Q1 fiscal 2005 earnings in light of its strong Q4 performance, which historically has tended to depressed first quarter earnings. “Q4 in terms of bookings is almost always our strongest quarter of the year,” said Chambers. “On the other hand, Q1 following strong Q4s has been flat to down in three out of our last four years.”

As for the decline in router sales, Chambers fingered several potential causes, including a drop in demand from service provides; increased competition, particularly in Asia; and Cisco’s ongoing effort to transition to new core and access product families. “With the introduction of the new core router, the CRS-1, and the new access router, the Integrated Services Router … it will take time as we make these transitions within the product family,” Chambers said.

For the record, each of Cisco’s other revenue categories—switches, advanced technologies, services and other sources—performed at or better than their year-ago and Q4 2004 numbers. Cisco’s services business continues to account for about one-sixth—$938 million, in Q1 2005—of its overall sales.

Cisco made several acquisitions during the quarter just past, but ended Q1 of fiscal 2005 with $18 billion in cash or cash equivalent assets on hand.

The networking giant also added 715 employees during the first quarter, although Chambers acknowledged that approximately half of these new hires came by way of acquisition. -Stephen Swoyer