Cisco Systems reports its fiscal fourth quarter after Tuesday's closing bell, with most investors focused on revenue growth and inventories, two areas of broad concern that have hit tech stocks in the past month.
Most analysts expect the world's largest networking gearmaker (CSCO: news, chart, profile) to report sales around $5.9 billion, a 25 percent gain from the same quarter last year and a sequential increase of 5.1 percent. Cisco's routers and switches are used to direct data and information across company networks and the Internet.
Shares of the San Jose, Calif.-based company are currently hovering around a 10-month low of $20 and are down 17 percent since the start of July.
"While technology results, generally speaking, have disappointed investors, we believe network infrastructure is faring better than other groups driven by a replacement cycle and an expanding total available market, which should lead to solid fourth-quarter results for Cisco," SG Cowen analyst Christin Armacost wrote in a research note.
On average, analysts expect earnings of 20 cents a share and sales of $5.89 billion, excluding charges, according to Thomson First Call.
In the same quarter last year, Cisco made $982 million, or 14 cents a share, on sales of $4.7 billion. Excluding charges, the company earned 15 cents a share.
During the previous quarter, it tallied $1.2 billion, or 17 cents a share, on sales of $5.6 billion. Excluding charges, Cisco earned 19 cents a share.
For the fourth quarter, which ended in July, Cisco predicted sales growth of 3 percent to 5 percent, with revenue between $5.77 billion and $5.88 billion. The prediction was made on May 11.
Investors sold off the company's shares, though, on hopes of more optimistic projections. Also, Cisco's inventory jumped almost 20 percent sequentially.
Cisco said it built more equipment because it was faced with growing demand and a tighter supply chain.
Analyst Matt Barzowskas with First Albany expects inventories to decline, but said that longer lead times are likely still affecting the company.
Analyst Raj Srikanth with Deutsche Bank estimates inventories to increase 2 percent to $1.14 billion, but he added that this still places the company's inventory within historical ranges of 16 percent to 18 percent of total sales.
For the fiscal first quarter, which is a traditionally slower quarter, analysts currently expect earnings of 20 cents a share and sales of $6.01 billion.
The sales target represents year-over-year growth of 40 percent and sequential growth of 2.2 percent.
Another aspect for investors to watch is the company's cash generation. Operating cash flow reached a record $2.4 billion in the third quarter and cash plus short-term investments tallied $8.86 billion.
Cisco has been under increasing pressure to do more with its money, especially since fellow tech heavyweight Microsoft (MSFT: news, chart, profile) boosted its dividend and set a $30 billion cash distribution plan.
While Cisco does not pay a dividend, it is an active repurchaser of its stock. In the previous quarter, the company spent $3 billion to buy back 131 million shares as the price slipped to a six-month low.
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A $10,000 investment in Cisco in March 1990, when the company first went public, would be worth $2.6 million today.
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