Analysts looking for signs of upturn as Cisco reports 4th quarter results

Monday, August 3, 2009

Earnings Preview: Cisco to report fiscal 4th qtr

NEW YORK — Cisco Systems Inc., the world’s largest maker of computer networking gear, reports its fiscal fourth-quarter results on Wednesday. The following is a summary of key developments and analyst opinion related to the period, which ran from April 26 to July 25:

OVERVIEW: When it reported results for the February to April quarter, Cisco said that sales seemed to be bottoming out after falling last year, culminating in big slide in January.

This quarter, analysts and investors will be looking for news that things have started turning upward again. The stock has already been on a tear, rising from just above $18 on July 9 to more than $22 this week.

Cisco’s sales have been cut sharply by the recession — as much as 17 percent last quarter — but the technology bellwether has the cash to ride out the storm. CEO John Chambers keeps describing the recession as a chance for the company to grab market share and expand into new categories. It completed its purchase of San Francisco-based Pure Digital Technologies Inc., maker of the Flip Video camcorder, in the fourth quarter.

In another sign of Cisco’s resilience relative to manufacturing stalwarts, its stock replaced that of General Motors Corp. in the Dow Jones Industrial Average at the beginning of June. It joins technology industry pillars IBM Corp., Hewlett-Packard Co., Intel Corp. and Microsoft Corp. in the index.

Cisco has made an effort to rein in spending, doing to so rather abruptly after sales started declining in October. It froze hiring and said it would cut travel and other costs. Its goal has been to save $1 billion during the fiscal year.

The company aimed to reduce its work force by 1,500 to 2,000 positions in the last half of the fiscal year, through a normal realignment of positions coupled with the hiring freeze.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect Cisco to post earnings of 28 cents per share on $8.5 billion in revenue. Cisco has said it expects sales to be down 17 percent to 20 percent from a year ago, which corresponds to a range of $8.3 billion to $8.6 billion.

Cisco usually provides a sales estimate for the current quarter. Analysts are projecting sales of $8.6 billion.

ANALYST TAKE: William Choi at Jefferies & Co. wrote Monday that he expects Cisco to beat the average analyst estimates for the fourth quarter. His checks of industry participants indicate that demand is improving. Price discounts remain “aggressive,” he said, but he expects Cisco to offset them with cost controls and a more efficent supply chain.

Simon Leopold at Morgan Keegan said “evidence of recovery, no matter how muted, could help the stock.” He noted that the stock is trading at about 16 times its estimated earnings for next calendar year, giving it an “interesting” valuation.

WHAT’S AHEAD: Smaller competitor Juniper Networks Inc. beat analyst expectations for its latest quarter but saw its shares decline anyway, a victim of even higher, unspoken expectations among investors.

Longtime Cisco partner IBM Corp. said in July that it would start selling Juniper’s routers and switches under its own brand. The move was interpreted as a response to Cisco’s move this spring into selling its own servers for data centers, competing with IBM’s products.

STOCK PERFORMANCE: Cisco’s stock rose 19 percent during the quarter, ending at $21.88.

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