Here is the BUMberg story. Seems as if they are trying to pull a BARON'S.
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Top Financial News
Sat, 05 Aug 2000, 3:05pm EDT
Cisco's 4th-Qtr Profit Seen Falling on Acquisition Expenses
By Scott Lanman
San Jose, California, Aug. 5 (Bloomberg) -- Cisco Systems Inc., the No. 1 maker of Internet equipment, is expected to report lower fiscal fourth-quarter net income because of acquisition costs. Revenue rose as much as 54 percent, analysts said.
Net income is expected to fall as low as an estimated 6.5 cents a share from 9 cents a year earlier. Excluding acquisition- related expenses, profit rose to 15 cents from 10 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. Cisco expects to record acquisition costs of as much as 8.5 cents a share for the period ended July 29.
Revenue climbed 47 percent to $5.22 billion, the average estimate of five analysts polled by First Call, though forecasts range as high as $5.49 billion. The growth, fueled by surging demand for Internet capacity, are coming from sales of corporate- network switches, high-capacity data-traffic routers, fiber-optic gear and equipment for high-speed Web access, analysts said.
``The question is, what does revenue growth come in at and what is their guidance going forward?'' said Walter Casey, an analyst at Banc One Investment Advisors, which owned about 20.4 million Cisco shares as of June, according to Bloomberg records.
Cisco will report results on Tuesday after the close of the Nasdaq Stock Market. The San Jose, California-based company, considered a technology bellwether by investors, typically exceeds the average profit estimate by a penny a share. Analysts expect that to happen this time, too.
Growing Demand
Cisco shares rose 1 3/16 to 65 9/16 on Friday. They're little changed in the past six months on concern that at 123 times expected fiscal 2000 profit, the shares are overvalued, analysts said.
``The label of `priced to perfection' is accurate,'' said CIBC World Markets analyst Martin Pyykkonen, who rates Cisco a ``buy.'' He doesn't expect Cisco to warn that future profit will lag estimates and said demand from telecommunications companies for Internet equipment made by Cisco and others is accelerating.
``They've delivered nothing short of perfection in results,'' Pyykkonen said.
Cisco's sales growth has increased for nine straight quarters. The company needs at least $5.516 billion in fourth- quarter revenue to match or top last quarter's 55 percent revenue growth rate. Sales were $3.56 billion a year earlier.
Working in Cisco's favor are strong quarterly revenue gains, reported last month, at Nortel Networks Corp. and smaller rivals like Juniper Networks Inc., analysts said.
They and Cisco are benefiting from demand for Internet capacity that executives said is doubling every six to 12 months. Analysts said Cisco's rivals haven't been able to grab significant market share from Cisco because industrywide sales are increasing so fast.
In addition, reorganizations at 3Com Corp. and Cabletron Systems Inc., which have been slimming their product lines, benefited Cisco, said Sanford C. Bernstein & Co. analyst Paul Sagawa, who rates Cisco stock an ``outperform.''
Profit Margins Fall
Profit margins fell in the quarter because of the increased sales of products to telecommunications companies, a more competitive market, analysts said.
Cisco dominates in sales of gear to corporate customers, though sales to telecommunications companies this year will surpass revenue from corporate customers for the first time in company history, said SG Cowen analyst Christin Armacost, who rates Cisco a ``strong buy.''
Cisco Chief Executive John Chambers gave several clues to the company's fourth-quarter revenue in a May 9 conference call to discuss third-quarter results, analysts said. On Thursday, a Cisco spokeswoman said the company's guidance hasn't changed.
During the call, Chambers highlighted order growth from the previous quarter in several major product lines.
Among them are some lines of Catalyst data-traffic switches, with sales up 40 percent and running at $3 billion annually; the 12000 GSR high-capacity routers that compete with Juniper's products, up 60 percent and running at $2 billion annually; and equipment that provides fast Internet access over cable and phone lines, up 20 percent and at $1 billion a year.
Cerent Acquisition
Cisco's acquisition of Cerent Corp. for $7.15 billion last November also is paying off, analysts said. Third-quarter orders for Cerent's fiber-optic product, which helps parcel out Internet capacity to businesses, rose 60 percent from the second quarter and ``should hit the $1 billion run rate next year,'' Chambers said on the May call.
Cowen analyst Armacost estimated that Cerent contributed about $180 million to $200 million in sales in the fiscal fourth quarter. Cerent had revenue of $9.9 million in the first half of calendar 1999.
Cisco is taking charges to write off research and development from four purchases in the quarter: Qeyton Systems AB, as much as 5 cents a share; JetCell Inc., as much as 1.5 cents; and as much as a penny a share each for Atlantech Technologies and Pentacom Ltd.
Year-earlier results are restated to reflect the acquisitions of StratumOne Communications Inc., TransMedia Communications Inc., Cerent and WebLine Communications Corp. Last year's earnings per share are adjusted for a 2-for-1 stock split in March.
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