Nov. 8 (Bloomberg) -- Cisco Systems Inc., the world's biggest maker of computer-networking equipment, reported a surge in first-quarter profit that topped analysts' estimates as customers snapped up gear for faster Internet service.

The shares climbed after Cisco's second-quarter sales forecast also exceeded expectations. The San Jose, California- based company said today that net income rose 28 percent to $1.61 billion, or 26 cents a share. Sales gained 25 percent to $8.2 billion, beating the average $7.9 billion analyst estimate.

Chief Executive Officer John Chambers said sales will advance as much as 25 percent this quarter, marking the fourth straight period of growth above 15 percent. Telephone service providers and corporations are seeking equipment to provide quicker downloads of video and other data on the Web, and ``momentum remains strong,'' Chambers said today.

``It's unbelievably impressive,'' said Matt Kelmon, who helps manage $400 million at Kelmoore Investment Co. in Palo Alto, California, including Cisco shares. ``For a company that size to have sustainable growth rates in the range of 15 percent is just really exciting.''

Shares of Cisco rose $1.98, or 7.9 percent, to $27.08 in extended trading after the report. They climbed 26 cents to $25.10 at 4 p.m. New York time in Nasdaq Stock Market composite trading and have jumped 47 percent this year to the highest since February 2004.

Beating Estimates

Excluding costs for stock options and other items, profit in the period ended Oct. 28 was 31 cents a share. That beat the 29- cent estimate of J.P. Morgan Securities Inc.'s Ehud Gelblum, ranked the top networking analyst by Institutional Investor magazine.

The average profit estimate of 24 analysts surveyed by Thomson Financial was 29 cents a share. The average of 25 for sales was $7.9 billion. Last year's first-quarter net income was $1.26 billion, or 20 cents a share.

Chambers, 57, delivered the company's second-quarter revenue forecast of 24 percent to 25 percent growth on a conference call today. Analysts on average expected 21 percent sales growth in the second quarter, to $8.04 billion, according to Thomson Financial.

The growth reflects how Cisco has taken more sales from competitors and successfully introduced new products, not improved sales or capital spending industrywide, Chambers said.

``Our vision of how the industry is going to evolve looks to be right on the money,'' said Chambers, whose company in the past has been a barometer for demand. ``We're getting results.''

`Execution Machine'

Orders outpaced sales growth in the quarter, the CEO said. Sales to telephone-service providers accounted for 25 percent of the total, while sales to companies upgrading their networks accounted for about 70 percent. The company reiterated its forecast for annual sales growth of 15 percent to 20 percent.

``These guys are a real execution machine,'' said Kevin Landis, who manages $700 million including Cisco shares at Firsthand Capital Management in San Jose. The company ``is growing and it's nicely profitable. It looks pretty darn good.''

Sales at Scientific-Atlanta, which Cisco acquired for $6.9 billion in February, were $584 million, topping Gelblum's $562 million estimate. The purchase gave Cisco the second-biggest U.S. maker of cable TV set-top boxes and may allow the company to win business from more companies providing Internet protocol television, or IPTV.

Cisco won contracts during the quarter from KT Corp. of South Korea, which is using the CRS-1 router to provide services like video on demand, and Verizon Communications Inc. That company is testing Cisco's video-conferencing system, introduced last month.

`Like Plumbing'

``You have to have video-capable networks,'' Kelmoore's Kelmon said in an interview. ``It's like plumbing in the old days; we're going from galvanized steel to copper.''

Cisco's acquisitions in the quarter included the $92 million purchase of Arroyo Video Solutions Inc. to provide more on-demand services, and the $31 million deal for Orative Corp. to link wireless handsets with corporate phone networks.

Gross margin, the percentage of sales left after subtracting costs of goods sold, shrank to 64.8 percent from 68.1 percent in the year-earlier period and 65.3 percent last quarter. Gelblum's estimate was 65.1 percent.

(Cisco held a conference call to discuss the results today. A replay of the call can be accessed at http://www.cisco.com/go/investors.)

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: November 8, 2006 18:11 EST