To: Softechie who wrote (709 ) 2/6/2001 8:40:11 PM From: Softechie Read Replies (1) | Respond to Cisco Systems (CSCO) 35 11/16 +1 1/8: By now, just about everyone knows that Cisco is supposed to beat by a penny. That's because they always do - the last time they failed to clear that bar was in 1997. The consensus estimate is $0.19, so the "true" estimate is $0.20. The revenue consensus is roughly $7.2 bln, though cautious comments from CEO John Chambers in recent weeks suggest little upside on the revenue line (he has called the recent quarter "more challenging" and said that Cisco customers are feeling the effects of the economic slowdown). But don't focus too much on these numbers in gauging the Cisco report -- the key will be forward guidance. In its last quarterly conference call, Cisco said that FY01 revenues would rise 50-60% (the Jan qtr is fiscal Q2 of 2001) and that FY02 growth would be in the mid-upper 30% range. Gross margins were expected to fall about 50 bp per quarter. The company has not offered specific guidance for the April quarter, but most analysts are expecting that it will be roughly flat sequentially -- this is typically Cisco's slowest quarter. In terms of the sources of weakness, analysts are focussing on the service provider sector, and specifically troubled CLECs, but there is also the very real possibility that Cisco's enterprise business (still 60% of revenues) is seeing a slowdown. Competitors in the enterprise space such as Extreme (EXTR), Foundry (FDRY), and f5 (FFIV) all saw slower sales growth or even declines in the Dec qtr. Other factors to focus on during the conference call include vendor financing issues (about one third of financing is to lower credit quality customers) and inventories. Recent cautious news from suppliers such as PMC Sierra (PMCS) and Applied Micro (AMCC) indicate that Cisco might have overstocked in the face of slowing demand. A fair amount of bad news is already discounted, with almost all sell-side analysts noting that they expect to reduce estimates after the call. But there is still a great deal of nervousness regarding just how severe future estimate reductions will have to be. We'll cover the conference call live on Short Stories this afternoon. Finally, in terms of other stocks to watch, the following come to mind: Suppliers: AMCC, BRCM, PMCS, VTSS. Contract Manufacturers: JBL, PLXS, SLR, SANM, FLEX. Competitors, Enterprise: EXTR, FDRY, FFIV, CS. Competitors, Service Providers: JNPR, AVCI, CIEN, CORV, SCMR, RBAK, ONIS. Competitors, Both: NT, LU. - Greg Jones, Briefing.com
