August 5th, 2008
Cisco faces tricky fourth quarter report
Cisco Systems reports its fourth quarter earnings Tuesday and an analyst says the quarter may be “the trickiest in memory.”
Wall Street is expecting fourth quarter earnings of 39 cents a share on revenue of $10.31 billion, according to Reuters’ Thomson Financial. But observers will be combing through the report and hanging on the commentary from Cisco CEO John Chambers to get a read on tech spending.
Deutsche Bank analyst Cobb Sandler sums things up:
We view Cisco’s FYQ408 (Jul) as among the trickiest in memory as several opposing cross currents, including cautionary commentary by CEO Chambers on July 9th, make forecasting share price movement difficult. We believe strength in data center products (switching, app acceleration) and geographical balance helped to offset a weak financial services vertical.
Sandler has been checking on the Cisco food chain and finding the prospects mixed. High ROI spending–application acceleration and data center consolidation–are giving Cisco some momentum, but things like enterprise networking are being pushed out. Sandler also notes that Juniper, which reported a strong quarter, has been gaining some routing market share with the introduction of its T1600 router. Add it up and you have a quarter with sketchy U.S. enterprise spending that could be offset by international sales.
Another key area to watch for Cisco is its advanced technology and “other revenue.” That category includes Cisco’s telepresence gear, which should benefit from high oil prices and travel cutbacks, and Web 2.0 applications like WebEx. Matthew Robison, an analyst at Pacific Growth Equities, says “certain Web 2.0 functions may be accorded a relatively healthy spending priority.”
Morgan Keegan analyst Simon Leopard reckons that Chambers will be upbeat on the long-term growth prospects for the company, but deliver a cautious outlook because of the economy. The current consensus revenue estimate for the fiscal fourth quarter is $10.4 billion, but could come down. Why? Chinese telecom carriers aren’t spending–China is largely shut down for the Olympics–AT&T and Verizon capital spending is flat and it’s unclear whether CIOs will keep spending on their networks. Indeed, Merrill Lynch’s second quarter CIO survey found that only 3.8 percent of CIOs said that networking equipment was a priority in 2008. That percentage is down from 8 percent in the first quarter. That assessment can’t be good for Cisco.
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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