May 6 (Bloomberg) -- Cisco Systems Inc., the world's largest maker of networking equipment, reported a 5.4 percent drop in profit because of acquisition expenses and predicted sales that met analysts' estimates as U.S. customers slowed spending.

Third-quarter net income declined to $1.77 billion, or 29 cents a share, from $1.87 billion, or 30 cents, a year earlier, Cisco said today in a statement. Revenue rose 10 percent to $9.79 billion in the period ended April 26.

Customers in the U.S. and Europe continue to be cautious, Chief Executive Officer John Chambers said on a conference call. Cisco has lost 20 percent of its market value since Nov. 7, when Chambers said orders from some big U.S. companies were slowing. Fourth-quarter sales will rise 9 percent to 10 percent, Chambers said, in line with the 9.1 percent predicted by analysts.

``He has the reputation for low-balling forecasts and being a conservative manager,'' Scott Neuendorf, an analyst with Hester Capital in Austin, Texas, said in an interview with Bloomberg Television. The firm owns 640,000 shares of Cisco. ``The fact that he's reiterating guidance is probably a bit of a relief.''

Cisco, based in San Jose, California, rose 26 cents to $26.59 in extended trading. The stock closed at $26.33 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 2.7 percent this year.

`Continued Uncertainty'

There is ``continued uncertainty in the macroeconomic environment,'' Chief Financial Officer Frank Calderoni said on the call.

Excluding costs such as stock-based compensation, third- quarter profit was 38 cents a share, compared with the 36-cent average of estimates in a Bloomberg survey. Profit was reduced by 4 cents a share for expenses related to the purchase of Nuova Systems Inc., Cisco said. Analysts estimated sales of $9.75 billion.

Cisco dominates the market for routers and switches, which manage Internet traffic for companies, cable providers and phone carriers. That makes the company an indicator for the health of the technology industry.

Revenue from routers jumped 14 percent from a year earlier, while switch sales rose 3 percent, Cisco said.

``I wouldn't say yet there's a turn -- it feels pretty steady in terms of business momentum,'' said Chambers, 58. The U.S. market has ``softened,'' he said.

The deteriorating U.S. economy is forcing companies to rein in technology budgets. Gross domestic product grew 0.6 percent in each of the past two quarters, marking the slowest six-month period in seven years.

Technology Spending

U.S. technology spending may rise 2.8 percent this year, down from an earlier estimate of 4.6 percent, according to Cambridge, Massachusetts-based Forrester Research Inc.

Cisco had 65 percent of the $11.6 billion worldwide router market in 2007, according to research company Dell'Oro Group in Redwood City, California. Juniper Networks Inc. was second with 16 percent.

Last month, Cisco agreed to buy the remaining 20 percent of Nuova that it didn't own to bolster sales of data-center gear. Cisco said the transaction would cost between $10 million and $678 million.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: May 6, 2008 17:57 EDT