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Cisco CEO Wants a Dozen Niches

An improving economy and contributions from its storage, security, wireless and IP telephony groups led Cisco Systems to higher second-quarter sales.

As part of the company's fiscal second quarter, CEO John Chambers also said he would like to eventually have offerings in 12 promising niches, either through acquisition, partnership or internal development. The company is looking at storage, security, wireless and IP telephony as part of its core competencies.

The network equipment giant posted $5.4 billion in revenue, up from last year's $4.7 billion. Net earnings were $1.3 billion (not counting an accounting charge), or 18 cents per share, compared to $1.1 billion, or 15 cents.

But with the charge, a result of changes in accounting rules for acquisitions, Cisco posted net earnings of $724 million, or 10 cents per share.

"We were very pleased with most operational measurements, but especially profit," Chambers said during a conference call with analysts.

Cisco's customers are increasingly optimistic about the economy, although some are still wary of increasing capital expense budgets and workforces.

In the service provider market, the San Jose, Calif., company said cable companies and mobile carriers are bolstering their networks to deliver new services. While sales to service providers and enterprises still make up the bulk of Cisco's business, it also touted its advanced technologies divisions.

For example, the company's Linksys unit saw revenue rise almost 39 percent to $165 million. Traditionally, it's a strong quarter for consumer products because of the holidays, although results were a little better than the company expected. Linksys also added new wireless home entertainment products in the quarter.

Cisco paid $500 million for Linksys last year to capitalize on demand for wireless connections from consumers and small business owners.

There was one area of concern in the quarter -- longer-than-expected lead times in manufacturing because of delays in receiving component shipments. The glitch occurred early in the quarter. If it happened later, it could have impacted the numbers.

"We will go back and see what process changes we can make," Chambers said.

The company, which competes against Juniper Networks and Nortel , has seen its stock climb in recent weeks. Shares were up a fraction Tuesday to close at $26.41, before earnings were released.