CSCO ($11-$12.75) PE=79 stock up, but sales not seen improving soon
By Ben Klayman
CHICAGO, Aug 7 (Reuters) - Cisco Systems Inc.'s <CSCO.O>
stock surged on Wednesday after strong quarterly results, but
analysts and investors warned that the networking giant's
revenue will remain in a holding pattern until the economy
improves.
Stock in the San Jose, California-based company rose 11
percent in early trading, and was up 74 cents, or 6 percent, at
$12.81 in heavy Nasdaq volume at midmorning, one day after
Cisco posted stronger-than-expected earnings.
Analysts said the report sparked hopes the U.S. economy was
stabilizing.
The overall Nasdaq composite index <.IXIC> rose 3 percent
in early trading and was still up 2.5 percent at midmorning.
Over the last several quarters, the market has surged the day
after Cisco's earnings announcement on optimism that demand was
stabilizing.
Many analysts and investors, however, said revenue at the
No. 1 maker of equipment that directs Internet traffic will not
improve much any time soon.
"Cisco is going to find it extremely difficult, for a more
protracted period of time than many investors would like to
believe, to reestablish top-line growth," said Andy Schopick,
vice president of research at Connecticut-based broker-dealer
Nutmeg Securities, which does not own Cisco shares.
Cisco Chief Executive John Chambers on Tuesday touted the
company's strong growth in U.S. corporate, or enterprise,
product orders. However, he also talked about weakness in
Germany, Japan and Latin America, as well as concern about
further potential spending cuts in the telecommunications
industry.
The corporate market accounts for about 80 percent of
Cisco's revenue, with telecommunications making up the rest.
Chambers said customers were still cautious about spending,
and he forecast that revenue in the first quarter would be flat
to slightly up from its fiscal fourth quarter ended in July.
'PEOPLE ARE SCARED TO BUY'
"You got a quarter as good as you can expect in this
environment ... (but) people are scared to buy things and it's
a bear market in technology," said Alan Loewenstein, portfolio
co-manager John Hancock Technology Fund, which owns shares in
Cisco.
Salomon Smith Barney analyst Alex Henderson said the
quality of the results was not particularly good in several
respects.
"The revenues came in at the low end of the band, virtually
dead flat quarter to quarter, despite it being a seasonally
stronger quarter," he said.
Henderson also cited Cisco's inability to build a backlog
in the fourth quarter and a projected first-quarter
book-to-bill ratio below 1.0.
Book-to-bill reflects how many orders a company gets in
relation to how much it ships. A ratio above 1.0 means demand
is greater than supply, while below that means the opposite.
Cisco said its fourth-quarter net profit, including
one-time items, was $772 million, up from $7 million last year.
Excluding one-time items, Cisco earned 14 cents a share, 2
cents above analysts' expectations.
Revenue rose 11.6 percent from last year to $4.83 billion,
but was largely flat with the previous quarter and slightly
below Wall Street's forecasts.
AT LEAST THINGS NOT GETTING WORSE
"The best thing you can say about Cisco's results is that
things are not getting worse," said an analyst with Morgan
Stanley Asset Management who follows semiconductor companies
that supply Cisco
"There's no uptick yet in business, but it is definitely
not getting worse," said the analyst, who asked not to be
identified.
SG Cowen in a research report viewed Cisco's news as
negative for its component suppliers, saying a recovery looked
further out now.
Also on Tuesday, Cisco, sitting atop a cash pile of $21.5
billion, almost tripled its stock buyback program to $8 billion
from $3 billion previously.
Cisco's shares have fallen about 29 percent so far this
year, compared with a 62 percent drop in the American Stock
Exchange Network Index <.NWX>, an industry proxy.
(Additional reporting by Eric Auchard in Boston)
((Ben Klayman, Chicago newsroom, +312 408 8787,
benjamin.klayman@reuters.com))
REUTERS
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