August 5th, 2009
Cisco's fourth quarter's crib sheet: Gauging enterprise spending
Cisco reports its fourth quarter results Wednesday and analysts are looking for a few signs that the enterprise business has stabilized and an outlook that’s a touch optimistic.
Cisco is expected to report fourth quarter earnings of 28 cents a share on revenue of $8.5 billion. Cisco CEO John Chambers is expected to remain cautious about the economy, but note that the enterprise business has at least stabilized a bit.
Here are some of the mileposts to watch:
Orders: Cowen & Co. analyst John Marchetti said in a research note that he’s looking for “signs of sales stabilization and modest improvement in the order pipeline for Cisco’s enterprise and service provider business” for the back half of calendar 2009. He’s expecting a book-to-bill ratio of 1.
Revenue: Most tech companies this quarter have topped earnings estimates on weak sales. Cisco may be no different. Morgan Keegan analyst Simon Leopold said that sales may fall short of expectations. However, there are some signs that the North America enterprise business is improving and could lead to better fiscal first quarter sales.
We think North American enterprise spending has shown some improvement and large global service providers likely deliver increased spending in (second half of 2009). However, European and emerging market trends from enterprises and carriers sound weak and do not likely rebound in Cisco’s October quarter.
Routers: Leopold sees routers (about 17 percent of Cisco’s sales) being up 3 percent sequentially, but still down 30 percent year over year. Wedbush analyst Matthew Robison is a little more optimistic:
There have also been industry indications that the company is seeing product cycle strength in the router business with adoption of the new applications services router family, especially the ASR9000, and capacity upgrades for 7600 and XR12000 routers. While these products are mostly for service providers with strong emphasis on capacity to accommodate video, industry checks and our June survey indicate router upgrades remain high priority with enterprise customers.
Data center capital spending: Data center spending is seen to be weak and that will hurt Cisco. Microsoft and Google are holding data center spending plans in check or improving efficiency.
Web 2.0 and Cisco’s future businesses. Robison indicated that Cisco’s next generation of businesses appear to have gone to the back burner among customers. He added:
Industry checks and survey results do not indicate Web 2.0 or UCS/cloud initiatives to be high priority in the marketplace, but awareness is growing and economic stability should bring more attention to innovation – perhaps even if it is stability without new jobs. We are starting to hear of IT managers bringing frozen and postponed initiatives back to vendor discussions.
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.
For daily updates, follow Larry on Twitter.
Subscribe to Between the Lines via Email alerts or RSS.
