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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: marginnayan who wrote (54290)	8/6/2001 3:29:45 AM
From: calgal	Read Replies (2) \| Respond to of 77400

Will Cisco be bullish or bearish? August 06, 2001 12:00 AM ET by Rex Crum A summer of mostly gloomy corporate earnings is about to come to a close when Internet switch and router maker Cisco Systems (CSCO) delivers its fourth-quarter and full-year figures on Tuesday. Aside from Chief Executive Officer John Chambers and Chief Financial Officer Larry Carter, it's doubtful anyone knows for sure whether Cisco's words will soothe or scar a technology market desperate for any signs of a turnaround. Though that hasn't stopped some from guessing. Rumors have swirled on the Street both that Cisco will give a positive outlook and that it will issue a profit warning. Poster child What is for certain is that all eyes will be watching its numbers cross the wire and Chambers give his outlook for the telecommunications equipment industry. Whether it likes it or not, Cisco has become the face of the Internet economy and its health will affect the entire sector. "The issue as I see it is 'When do they see anything like a real [business] turnaround?'" said James Reynolds, a networking analyst with Ragen MacKenzie. "A big chunk of their customer base is gone so you have the matter of where other customers to take up the slack will come from and that's not clear." Like many network-equipment companies, Cisco's sales and profits have dried up as telecom service providers and large business customers have curtailed their capital spending over the past quarter or two. In May, Cisco reported a third-quarter a net loss of 37 cents a share and wrote off $2.2 billion in excess inventory. It was the first time in Cisco's history as a public company that it reported a net loss. On a pro forma basis, Cisco earned 3 cents a share, just beating the 2-cents-a-share consensus estimate from Wall Street analysts. Of course, those estimates were lowered from 8 cents a share after Cisco warned on April 16. After years of boasting double-digit revenue and earnings growth, Cisco is mum on how it is doing this quarter. Since reporting Cisco's third-quarter net loss, CEO Chambers has not offered any guidance on the company's fourth quarter or full-year figures. Analysts surveyed by First Call/Thomson Financial estimate on average Cisco will earn 2 cents a share for the quarter, 88 percent less than the 16 cents a share the company earned during the same period last year. Up on hope Lately, Cisco's stock price has risen, closing at $20.20 on Friday, up 53 percent from its 52-week-low of $13.19 and up 6 percent for the week. Paul Sagawa, networking analyst at Bernstein, said the run-up is the result of wishful thinking on the part of investors who hope Cisco will have good news to say about the networking market when it delivers its Q4 report. "I believe the current price has in it an expectation that Cisco is going to give good guidance and I don't believe that's the case," Sagawa said. "If they do, it's going to be a risky stance because it goes against the current state of [product] demand and the economy." Will Cisco be bullish or bearish? page 2: It won't be easy Maribel Dolinov, a networking analyst with Forrester Research, said there might be a good reason why Cisco has kept its mouth shut -- times are tough. Dolinov said that a recent ballpark survey showed that out of 18 service providers, about 80 percent are either cutting or keeping flat their capital-spending for the coming year. "[Service providers] are doing a lot of window shopping," Dolinov said. "They're looking at the type of equipment they have and deciding there isn't the pressure to buy more, now. That talk doesn't bode well for equipment manufacturers." As much weight as Cisco has, analysts say it's unlikely even better than expected earnings results would spur a sector turnaround. "I expect them to come close to their numbers, but profits are being squeezed and they're struggling somewhat," said Jim Slaby of Giga Information Group. "There are signs that Cisco's having to do a lot of wheeling and dealing and offer big price discounts [to customers]." Betting on VPNs Some see signs of life in recent acquisitions. In July, Cisco bought optical-equipment technology firm AuroraNetics and virtual private network (VPN) software maker Allegro Systems for a combined $331 million in stock. The deals were Cisco's first corporate purchases of the year, a sharp contrast to 2000, when it spent $12 billion in stock and cash to acquire 23 companies. Analysts said the Allegro Systems buy signals the potential for VPNs to become a larger force in corporate networking. Companies use VPNs to link mobile workers, branch offices and other out-of-office employees over the Internet. With a VPN in place, a worker can log onto a corporate network over a local Internet connection instead having to dial directly into the network. The VPN is said to be able to save companies money on network connection charges. Martin Pykkonen, an analyst with C.E. Unterberg, Towbin, said that he expects Cisco to include Allegro's VPN software in its enterprise networking product line. Pykkonen said that the new offering would likely appeal to corporations that need to manage large amounts of network traffic over public network infrastructure. Won't be easy Forrester's Dolinov concurred, and said her own survey of more than 1,000 billion-dollar revenue companies showed only 26 percent currently had VPNs, and another 40 percent were either considering or in the process of adding VPNs. But Dolinov said that many service providers now don't have the money or the fear of competition that pushed them to buy networking gear before. Even with a significant push into the VPN market, Cisco will still have to ride out the current market downturn along with everyone else. "They have a lot of challenges ahead of them," Dolinov said. upside.com upside.com