May 6th, 2009
Cisco's third quarter: Looking for stabilization
Cisco’s third quarter came down to the wire and Wednesday after market close Wall Street will get to see whether the networking giant made the cut. Analysts are mixed on whether Cisco can top expectations, but most expect to see signs that demand has stabilized.
Cisco is expected to report third quarter earnings of 25 cents a share on revenue of $8.06 billion.
To get a feel for just how uncertain Cisco’s quarter is take a gander at Goldman Sachs’ take. Goldman Sachs analyst Simona Jankowski said:
We expect Cisco’s results to come in at the high end of the company’s guidance for a sales decline of 15-20% year over year.
But Jankowski notes that Cisco’s enterprise business—40 percent of sales—should be stabilizing. Jankowski added:
The feedback from earnings season, as well as our anecdotal checks, points to emerging signs of stabilization in the enterprise networking segment in the United States, and some improvement in China and parts of Asia. Earnings season for enterprise networking companies was largely in line, with a slight beat by Riverbed, a slight miss by F5 Networks, and in-line enterprise results from Juniper. Similarly, our channel checks have been mixed rather than universally negative.
And then there’s JMP Securities analyst Samuel Wilson. He writes:
Industry sources close to Cisco’s channel tell us that pressure was on and Cisco was shipping hardware right up to the wire on Friday when the books closed. The same situation happened last quarter, leaving the company to begin this quarter with little backlog. These data suggest that Cisco’s results for the quarter will not significantly exceed expectations.
Wilson adds that Cisco tightly managed costs in the quarter, but the fourth quarter guidance may be flat to up slightly. As usual, the guidance from Cisco will garner a lot of focus. For the fiscal fourth quarter, Cisco is expected to report earnings of 27 cents a share on revenue of $8.3 billion.
Add the prognostications up and it appears that hopes for a “less worse” outlook abound. Analysts aren’t talking about a rebound as much as the demand decline to come to an end. Stifel Nicolaus Sanjiv Wadhwani reseller survey indicates that demand is expected to improve relative to the last six months.
Wadhwani writes:
On the outlook for the next 6 months, an overwhelming 60% of respondents expected sales performance to be better versus the prior 6 months. 20% of survey respondents expected the performance to be the same while another 20% expected it to be worse. On the negative side, resellers mentioned that Cisco is starting to give additional rebates in order to better compete against HP’s ProCurve. This could result in some gross margin degradation. However, we expect this to be offset by aggressive cost controls, keeping overall operating margins healthy.
Other odds and ends to note:
- Cisco’s gauge of interest for its Unified Computing System;
- Insight on the competition, notably HP;
- Demand indicators for Cisco’s other businesses such as WebEx, Telepresence and the consumer unit.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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