Vic, are you still knocking Cisco?
Cisco Expected to Triple Earnings
By Ben Klayman, Reuters, 5/3/2002
CHICAGO (Reuters) - Cisco Systems Inc. (CSCO.O) is expected to triple last year's weak results as the technology bellwether's reliance on large customers outside of the telecommunications industry has helped it weather the meltdown in spending by telephone companies.
The San Jose, California-based company's dominance in the corporate, or enterprise, sector has helped the No. 1 maker of gear that directs Internet traffic bounce back faster than many competitors, analysts and investors said.
Cisco, whose stock has fallen 65 percent since the beginning of last year, is scheduled to report fiscal third-quarter results on Tuesday.
''Someone at some point has to start breaking away in terms of not just market share, but profits,'' said Henry Asher, president of the North Star Group, a New York money manager that owns Cisco shares.
Cisco is expected to earn 9 cents a share, before one-time items, with a range of estimates from 7 cents to 10 cents, and post sales of $4.86 billion, according to analysts polled by Thomson Financial/First Call. Last year, the company earned 3 cents a share on $4.73 billion in sales.
Many analysts even say the company will beat estimates this year by a penny or two due to cost cutting and improved profit margins, as well as continued market share gains.
Cisco had beat estimates by a penny quarter after quarter until last year's second quarter, but has recently returned to topping Wall Street's expectations.
The company, which derives most of its revenues from the enterprise sector, earned 9 cents a share on sales of $4.8 billion in the second quarter. In February, it forecast third-quarter revenues up in the ''low to single-digit'' range over the second quarter.
Cisco's shares closed the week down 5.5 percent at a seven-month low of $13.14. The stock has tracked a rise, and decline, in the American Stock Exchange's Network Index (.NWX) since Sept. 11. It has slightly outperformed a 73 percent fall in the Network Index since the start of last year.
MODEST FORECAST EXPECTED
Based on positive comments recently made by smaller competitors Extreme Networks Inc. (EXTR.O) and Foundry Networks Inc. (FDRY.O) regarding growth in corporate demand, most analysts expect Cisco to forecast flat to 3 percent revenue growth in the seasonally strong July quarter.
''All things being equal, (Cisco) couldn't be much better,'' said Merrill Lynch analyst Samuel Wilson, pointing to its $21 billion in cash, and the fact four-fifths of revenue comes from enterprise business, which will recover first.
''They're not losing market share and they continue to be very aggressive on going after new markets,'' he said.
Others are worried the recovery in IT, or information technology, spending by companies, will not come soon.
''Most distributors ... are still optimistic that business will pick up, but they are tempering their recovery scenarios to much more modest levels,'' SG Cowen analyst Christin Armacost said in a research note. ''We believe that the sluggish IT spending environment will persist longer than most had hoped.''
While the telecom market remains weak -- with carriers still slashing spending -- Cisco has felt less pain because that business accounts for only 20 percent of its revenues. Nevertheless, it is gaining market share there.
Rivals Juniper Networks Inc. (JNPR.O) and Riverstone Networks Inc. (RSTN.O), both of which supply telecom carriers, have said over the past couple months their current quarter would be flat or down from the previous three-month period.
Because of the market uncertainty, some investors remain wary. ''I don't see it being anything other than a bumping along, waiting for times to get better,'' Asher said.
Cisco also has its cash to fall back on, which analysts expect to grow by another $1 billion in the third quarter.
''We look for Cisco cash balances to increase again to over $22 billion, underlining the arsenal of resources that may be applied to pressure cash-strapped rivals such as Nortel (NT.TO) (NT.N) and Lucent (LU.N) over the next few years,'' Lehman Brothers analyst Tim Luke said in a research note.
Chief Executive John Chambers has said repeatedly Cisco has no plans to acquire a large competitor and will focus on small- and medium-sized privately held companies that offer emerging technologies. On Thursday, it announced plans to buy its first two companies of the year for up to $258 million in stock
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