Cisco not a likely candidate for a near-term preannouncement---Briefing
Cisco Systems (CSCO) 18.04 +0.36: We are in the heart of warnings season for companies with a June quarter-end. With its July quarter-end, Cisco is therefore not a likely candidate for a near-term preannouncement, but the market is nevertheless buzzing with speculation about whether or not Cisco will have to warn eventually. Here are some pros and cons:
Factors arguing against a warning:
By most estimates, Cisco's enterprise business still accounts for the majority of revenues (probably 65-70%), and the enterprise market has held up much better than the imploding service provider business.
Other enterprise-focussed networkers such as Extreme (EXTR) and Foundry (FDRY) have suggested that they can meet current Jun qtr guidance which call for roughly flat revenues.
Though service provider business is terrible, Cisco's Cerent product competes in the relatively strong metro access space, and there has been widespread talk that its core router is regaining market share from Juniper (JNPR).
Factors arguing for a warning:
Anecdotes suggest that April was a good month for enterprise business, but May and June deteriorated. If so, Cisco's July quarter makes it even tougher to meet guidance as it doesn't include April.
The service provider business is horrible. Even if its Cerent and core router products are gaining share, they are gaining share in a shrinking market, if warnings from the likes of Nortel (NT) and Juniper (JNPR) are any indication.
International business is just over half of Cisco's revenue, and the deterioration on the margin appears to be coming primarily from Europe and Asia.
Pricing pressure is becoming more of an issue, particularly in the service provider market, but in enterprise as well, with the "gray" market still awash in second-hand Cisco gear.
Cisco guided Jul qtr revenues to flat to down 10% sequentially at the time of its last earnings conference call. With over five full weeks remaining in the quarter, it is highly probable that this guidance is still achievable, and a near-term warning is therefore unlikely. The real question is whether this guidance will be achievable with 2-3 weeks left in the quarter. Our guess is that the negatives outweigh the positives for Cisco and that a warning is a better-than 50/50 shot, and a best-case scenario at this point is probably that the company avoids a preannouncement by hitting the low end of the guidance range. - Greg Jones, Briefing.com |
