Investors Await Cisco Earnings
Feb. 5 -- Cisco CEO John Chambers has carefully telegraphed his concerns about an equipment-spending slowdown and a cooling economy that threaten to slow the Internet gear maker's hypergrowth.
Now, investors are looking to Tuesday's postclose earnings report to see if Chambers can navigate a re-entry into what some expect will be a more earthly 20 percent to 25 percent annual growth atmosphere.
"Last quarter, they were growing 60 percent-plus off a multibillion-dollar base," says Paul Meeks, portfolio manager for the Merrill Lynch Global Technology fund. "They can't help from being pulled down by this thing," says Meeks, who has a large position in Cisco.
Though Chambers has said business has softened in the past two months, Wall Street is not fearing an earnings disappointment. The First Call/Thomson Financial consensus points to a Cisco profit of 19 cents a share for the fiscal second quarter. "They've got enough play to still beat that by their customary penny," says one analyst who has a hold rating on Cisco and asked not to be identified.
Company May Have to Quell Optimism
The real concern for Cisco and other networking concerns, namely Lucent and Nortel, is the rest of the year and beyond. Cisco has some specific challenges that include a weak stock price that may stall its growth-through-acquisitions strategy, a slipping lead in its core market and a host of weak customers that appear increasingly dependent on generous financing terms.
An industrywide spending slowdown took Cisco by surprise at the turn of the year, despite mounting evidence that customers were trimming their budgets. Chambers, no slacker when it comes to optimism, had just two months ago forecast annual sales growth in the 50 percent to 60 percent range.
Chambers has since recast that guidance and is now calling for revenue growth of between 30 percent and 50 percent. Chambers is also counting on a quick reboot of the spending process. But as at least one analyst, BlueStone Capital's Susan Kalla, has pointed out, spending cycles can take a year or two to bounce back.
