Cisco Systems' fourth-quarter financial results met analysts' expectations on Tuesday, but revenue dropped 25 percent and profits fell 86 percent. Excluding one-time costs, fourth-quarter net income was $163m, or 2 cents per share, compared with income of $1.2bn, or 16 cents per share, during the same period last year. Wall Street analysts expected Cisco to earn 2 cents per share, according to a survey by First Call. Revenue fell 25 percent, from $5.7bn last year to $4.3bn this year. Cisco chief executive John Chambers said the economy is showing signs of picking up, but remained cautious in his forecast for future financial results. He predicted that first-quarter revenue would remain flat or fall 5 percent from the fourth quarter. The worst may not be over for another quarter or two in the US economy, he said. "While we'd like to say the bottom has been reached, I don't think we are there yet," Chambers said in a conference call with financial analysts. "We see some signs of the US stabilising. (But) in Europe and Asia, things could get worse before they get better." Including one-time costs, Cisco earned fourth-quarter net income of $7m, or zero cents per share, compared with income of $796m, or 11 cents a share, during the same time last year. Chambers said fourth-quarter sales of networking equipment to businesses grew sequentially in the fourth quarter, but the percentage of sales to service providers decreased to the low-teens. The company also reduced the size of its excess component inventory by $572m to about $1.7bn. Last year, with the Internet downturn just starting and the spending slowdown not yet under way, Cisco reported its strongest quarter in four years with revenue jumping 61 percent. Telecommunications carriers and corporations snapped up Cisco's networking equipment as the Internet continued to expand. But things have changed with the dot-com implosion and economic downturn. Cisco -- along with its networking rivals Lucent Technologies and Nortel Networks -- is in the midst of its toughest year ever. All three companies have had their fair share of earnings warnings and layoffs. "In many ways, fiscal 2001 was like two different years, starting out even more positive than we anticipated through December with year-over-year growth in the 60 percent-plus range and then turning into an extremely challenging second half of the year," Chambers said. Cisco executives said the company will continue to try to keep costs down and expects the company's overall work force to decrease next quarter through attrition. In recent quarters, the company has saved $1bn through cost-cutting that included layoffs and moving traditional educational courses for employees to the Web, executives said. SG Cowen Securities analyst Christin Armacost said an increase in fourth-quarter corporate sales is a good sign since the brunt of Cisco's revenue comes from businesses. Cisco's forecast for flat to a 5 percent decrease in revenue next quarter meets her expectations. "Chambers implied that they're seeing some signs of stabilisation but also left the door open that it could weaken," she said. "Overall, I think the worst is over from a surprise factor. It's encouraging that they are seeing some stability and aligning their operating model to run profitably." Chambers remained optimistic in his long-term outlook. He reiterated his belief that despite the economic downturn, Cisco can take market share from its competitors, especially in fast-growing markets such as Internet telephony, security and wireless networking technology. Chambers claimed that Cisco in the past quarter captured 3 percent to 5 percent market share in the market for high-end routers, devices that service providers use to send data through the Net. Cisco, which has about 60 percent of the market, had been steadily losing market share to rival Juniper Networks in the past two years. But it's unclear how large the company's revenue growth will be once the economy recovers, Chambers said. Cisco historically has said it can grow sales 30 percent to 50 percent in the long run. "We view this market is going to grow, and time will tell whether (it's) in the 15 to 20 percent (growth) range or 30 to 50 percent growth range," he said. For Cisco's fiscal year, excluding one-time costs, the company earned $3.1bn, or 41 cents per share, compared with $3.9bn, or 53 cents a share, for the previous year. Revenue for the fiscal year increased 18 percent to $22.3bn, compared with $18.9bn in the previous year. For the fiscal year, including one-time costs, Cisco lost $1bn, or 14 cents a share, for the fiscal year, compared with a profit of $2.7bn, or 36 cents a share. See techTrader for the latest financial news in the high-tech sector. See the Business News Section for full coverage. Have your say instantly, and see what others have said. 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