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Video delivers for Cisco - August 7, 2007

YouTube may be yet to turn a profit but it's doing wonders for Cisco System's bottom line.

The maker of Internet routers and switches posted stronger than expected fourth-quarter earnings after market close today and upped if first-quarter and full-year forecasts. The news sent shares up 6% in after-hours trading.

Much of the fuel for the rapid ascent is coming from Web-based video, which is driving a buildout of broadband capacity, increasing demand for Cisco's networking gear.

"There's no question video is the killer app here, whether user-generated, movies or conferencing. The more it goes the better we go," Cisco chairman/CEO John Chambers told analysts in a conference call. "Video sure ads to [network] loads . The buildout that is driving [the network equipment] business is really being driven by video."

The company raised its long-term forecast as well. Chambers said he now expects to see revenues increase by 12% to 17% a year, compared to the 10% to 15% the company was forecasting previously. The more bullish outlook inevitably evoked memories of the pounding the company took in the late 1990s, when even more aggressive forecasts fell as flat as the dot-com bubble. But for now at least, investors seem to have forgiven, if not quite forgotton, those earlier pratfalls. Shares of Cisco are up more than 70% over the past 12 months.

The company is also doing its own part to raise those network video loads. In a Q&A in today's Wall Street Journal, Chambers said Cisco's Scientific-Atlanta unit would soon introduce a new set-top cable box that will allow consumers to download content from the Internet and distribute it across a home network.

The company also plans to drop the Scientific-Atlanta and Linksys brand names over the next year and consolidate those product lines under the Cisco banner.
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