DBC report mentions Cisco may have a hard time gaining ground against ASND with ISPs.
Cisco punished after missing 'whisper'
SAN JOSE, Calif (DBC) -- Shares of Cisco Systems Inc. fell 2 percent Wednesday on news that the networking giant's fiscal
fourth-quarter earnings didn't live up to so-called "whisper" numbers.
Cisco also raised concerns in some quarters after saying said slower orders and more competition may take their toll on first-quarter
results.
The company said it earned 55 cents a share, compared with 42 cents a share a year ago. While on target with the First Call
consensus estimate, the results fell below unofficial estimates that ran as high as 60 cents a share. Sales increased to $1.8 billion from
$1.3 billion the same period a year ago. In a conference call following the quarterly report's release, Cisco said its gross margin
decreased slightly to 65.1 percent from 65.3 percent in the third quarter. The stock closed down 1 5/8 at 80 3/8.
Gruntal & Co. reiterated its "buy" rating on the stock, attributing weakness to the contrast with whisper numbers, not fundamental
issues. Indeed, Gruntal said it remains optimistic about Cisco's business, and sees the decline in share price as a buying opportunity.
Although 47 percent of its bookings came from outside the United States in the fourth quarter, weakness overseas continued to be an
issue. Larry Carter, the chief financial officer, said performance in France, Germany and Japan continues to be "challenging."
Cisco, which has divided its business into enterprise, Internet service providers and small and medium businesses, said performance
in the enterprise and small and medium business segments was strong. However, ISP performance was erratic.
In its first quarter, Cisco anticipates lower orders and short-term competition may affect performance. Carter said research and
development spending will not materially affect results beyond the third quarter.
Megan Graham-Hackett, an analyst with Standard & Poor's Equity Group, says Cisco's ability to penetrate and grow market share in
network equipment sales to Internet Service Providers may be an issue for the company going forward. This market is currently
dominated by Ascend Communications Inc. Cisco said it is making progress in the ISP area, and will become more aggressive in
research and development and sales and marketing in the first quarter to address this segment.
Graham-Hackett estimated Cisco would earn 57 cents in the fourth quarter. However, she said the quarter wasn't critical and a
couple of pennies above or below estimates isn't important. Graham-Hackett said Wall Street expected the quarter to be slow, as the
company saw a pause in spending in the June quarter.
Graham-Hackett believes analysts are looking toward the next six months, and the December quarter in particular for cues on
Cisco's performance. She believes Cisco offers the best end-to-end solutions for large enterprise networking, and stands to benefit
the most from the industry's move to switching versus routers. Nevertheless, Graham-Hackett maintains her investment rating of
"buy" on the stock.
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