Speaking of Gorillas,
Friday November 2 3:42 PM ET
Cisco Seen Giving Investors Treat
By Ben Klayman
CHICAGO (Reuters) - Cisco Systems Inc. (Nasdaq:CSCO - news), which makes the networking gear that helps power the Internet, will likely drop a belated Halloween treat in investors' bags when it reports results on Monday, signaling the end of frightful sales declines, analysts and investors said.
As a bellwether New Economy stock, Cisco's fiscal 2002 first-quarter results -- due on Monday after the market close -- will serve as proof the tech industry has reached its nadir and will begin to rebound soon, analysts said.
``They will attempt to make the (post-earnings conference) call as positive as possible by signaling their overall business is at a bottom and the fiscal second quarter should see an uptick in revenue and earnings per share, ''said Justin McNichols, portfolio manager with San Francisco asset management firm Osborne Partners Capital Management, which owns Cisco shares.
``I would be surprised if they didn't say both of those things,'' he added.
Analysts expect San Jose, California-based Cisco to earn 2 cents a share, with a range of 1 cent to 3 cents, according to Thomson Financial/First Call, which tracks such data. Revenues for the quarter ending Oct. 31 are expected to finish at $4.1 billion, with a range of $4 billion to $4.3 billion.
No surprises are expected in the results, as just last month Chief Executive John Chambers said he was ``very comfortable'' with Wall Street's estimates. Cisco, the world's biggest Internet networking company, said in August sales would be flat to down 5 percent from the fourth quarter's $4.3 billion.
Since the beginning of the year, Cisco's stock has outperformed its peers in the American Stock Exchange Networking (
NWX - news) index by about 25 percent. Since Oct. 2, Cisco's stock has risen almost 54 percent.
UPSIDE POSSIBLE
Given Chambers' confidence, some analysts expect the company to perform at the high end of its guidance, possibly posting sales even with the fourth quarter.
``I would expect to possibly see some upside in the quarter,'' said Shawn Campbell, analyst with Northern Trust Corp.'s asset management arm, which owns about $1.3 billion in Cisco shares.
While capital spending among telephone carriers and corporations has been weak -- hurting larger players like Canadian telecom equipment giant Nortel Networks Corp. (NYSE:NT - news) (NT.TO) -- smaller networking firms like rival Juniper Networks Inc. (Nasdaq:JNPR - news) and Riverstone Networks Inc. (Nasdaq:RSTN - news) have provided hope with strong results or forecasts of growth.
Several analysts now expect Cisco to boost revenues in its second quarter, which would mark the first quarter-to-quarter increase in almost a year. That would potentially signal that a bottom for the economy was in the rear-view mirror.
In the tougher environment, analysts want to ensure Cisco is maintaining its strong balance sheet, which last quarter included $18.5 billion in cash and cash equivalents. While competitors like Nortel and Lucent Technologies Inc. (NYSE:LU - news) struggle to conserve cash, Cisco can use its own funds to strengthen its market share through acquisitions.
``Cash is a weapon in business,'' said Rob Lloyd, portfolio manager of AIM Global Telecommunications and Technology Fund, which owns Cisco shares.
No analysts, however, expect Cisco to use that cash to cut prices in an effort to gain market share at the expense of profit margins.
``Unlike in the past, when they were so focused exclusively on market share, they're focused right now on profitable market share,'' Merrill Lynch analyst Michael Ching said. I don't think you'll see these price wars that some had been predicting.''
Analysts expect Cisco's receivables and inventories to have improved during the quarter.
HAVE ORDERS STABILIZED?
Investors also want reassurance that orders have stabilized since the Sept. 11 airplane attacks, something to which Chambers alluded last month when he said orders were ''remarkably linear'' from June through September. Linearity refers to the smoothness of orders coming in to a company.
Chambers said last month there was some disruption in orders after Sept. 11, but business had been good since then. However, given the unpredictable nature of the economy, he declined to discuss how orders or results were looking beyond the first quarter.
He even said Cisco planned to reset its budget during the fiscal year and readjust its goals in January.
McNichols, however, wonders whether the quarter was boosted by post-Sept. 11 orders from the U.S. government -- orders that were most likely a one-time occurrence.
In the end, analysts and investors want to hear that information technology spending will improve next year, or at least that a bigger percentage of what is spent will go toward enterprise data traffic.
``A lot of the market is still waiting for Cisco, which obviously has got its tentacles out there in many places to hopefully say something that is fairly definitive,'' said Martin Pyykkonen, analyst at C.E. Unterberg, Towbin.
dailynews.yahoo.com |
