Cisco is investing in a recovery

On Tuesday, Berkshire Hathaway's (BRK.A) Warren Buffett said his company was buying railroad giant Burlington Northern Santa Fe (BNI) as a bet that the American economy will recover.

Today, Cisco Systems' (CSCO) CEO John Chambers said he was betting on an economic recovery that's here.

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"There will be a good chance we will look back to see that Q3 was in fact the bottom; that Q4 was the tipping point; and the recovery started aggressively in Q1 of fiscal '10," Chambers told analysts on a conference call late today.

Wall Street liked the optimism. The stock was up 1.7% to $23.29 in regular trading and rose an additional 2.9% to $23.95 after hours.

Cisco shares are up 42.9% this year and 71% from the March 9 bottom.

Revenue in Cisco's fiscal first quarter, which ended Oct. 24, fell 13% from a year ago to $9 billion. But that was up 6% from the fiscal fourth quarter. And it was higher than the average Wall Street forecast of $8.7 billion.

The company earned $1.8 billion, or 30 cents a share, down from $2.2 billion, or 37 cents a share, a year ago. Excluding one-time expenses, profit was 36 cents a share, down from 42 cents a year ago but better than the consensus estimate of 31 cents.

The company forecast fiscal-second-quarter revenue would increase by 1% to 4% from a year earlier. That would be an increase of 2% to 5% compared with the fiscal first quarter.

The consensus estimate was for sales to fall 1.3%.

Cisco has been stepping up acquisitions to ensure it grows faster than its rivals once the economy recovers.

The company has expanded from its traditional focus on routers and switches to a broader range of products and services, including videoconferencing, cable set-top boxes and business software.

Since October, Cisco has announced plans to buy Norwegian video conferencing company Tandberg for $3 billion, as well as a $2.9 billion deal for wireless-equipment maker Starent Networks Corp.

Some Tandberg investors are asking for more money. Chambers said he thought the deal would get done, but Cisco wouldn't hesitate to walk away if need be.

Chambers also said Cisco intends to aggressively invest in new and "adjacent markets" this quarter.

"Adjacent" means technologies that can connect to, and bolster sales of, its existing products. Videoconferencing should drive sales of routers and switches as high-resolution Web videos require advanced network equipment.

This aggressive M&A strategy has helped Cisco grow from a company with annual revenue of around $40 billion from slightly above $1 billion when Chambers became CEO in 1995.

The U.S. economy grew about 3.5% last quarter, pulling out of the longest recession since World War II. Customers that had slowed or halted spending during the slump are now buying networking gear again.

Phone giant AT&T (T) expects to spend at least $5 billion on capital equipment in the final three months of 2009.

North American buyers of corporate-networking gear also are loosening their purse strings, analyst Erik Suppige of Signal Hill Capital Group told Bloomberg News.