The first major tech company to report a January quarter, Cisco beats the street’s profit expectations. But the networking company sees a sharp drop in orders, and more turbulence ahead. One of the IT industry’s most assertive diversification strategies will help it weather the storm.

Long-regarded as one of tech’s bellwethers, the company that makes most of the internet’s pipes reports much tougher times but, encouragingly for the industry as a whole, is keeping its head well above water.

Cisco’s net income for its second quarter was $US1.5 billion, ($0.26 a share), a 27% drop from the year-ago quarter’s $US2.06 billion ($US0.33 a share). Revenue fell 7.5% to $US9.09 billion from $US9.83 billion – though, notably, the decline accelerated during the final month of the quarter.

The Silicon Valley-based company sees revenue falling another 15% to 20% during its current quarter, but is buoyed by $US29.5 billion cash and no systematic layoffs are planned - a sharp contrast to most other techs.

The market had been hoping for a better outlook, but after an initial dip, Cisco shares finished after-hours trading up 1.41% following the announcement.

Chief executive John Chambers has used Cisco’s substaintial cash reserves to pursue an aggressive diversification strategy. With revenue in its core networking business slowing even before the recession, the company has used acquisitions and inhouse development to move into new areas such as telepresence (high-end video conferencing), collaboration software, unified communications and a rumoured push into servers, while its Linksys division is parlaying its home networking products into a home entertainment play.

Eating its own dog food, Cisco has also made its own telepresence suites central to its plan to cut travel as a key component of a drive to trim $US1 billion in expenses.

The company is also using some of its rainy day cash horde to prop up demand, with Cisco Finance offering customers low-interest loans to help prop up demand in New Zealand and around the world.