Having Shed Many Extra Pounds, Is Cisco Getting Back in Shape?
Cisco Systems reports quarterly earnings after the close of markets today; it will be the first time investors have heard from the company since CEO John Chambers admitted that Cisco “had an extra four or five inches around the waistline,” and thus shed about 12,000 jobs. But he also sounded an aggressive note, saying that rival Juniper Networks was “the most vulnerable I’ve ever seen them.”
So is Cisco on the road to the turnaround it has been promising since missing earnings expectations badly in February? Maybe so, says Stifel Nicolaus analyst Sanjiv Wadhwani in a note to clients. He says he expects Cisco to slightly beat guidance that has sales in the range of $10.86 billion to $11.18 billion, which would amount to growth of between one and four percent.
Wadwhani says checks with Cisco resellers show an improvement in pricing versus the year-ago period, though it’s hard to know whether that’s temporary. Hewlett-Packard’s networking business may be exerting less pressure on Cisco because of its own recent corporate drama.
Additionally, the product transition in the switching business that Chambers had blamed for many of Cisco’s earnings difficulties in prior quarters appears to be largely completed, Wadhwani says — which means business will not be the drag on results that it has been in recent quarters. “Overall, we believe that switching performed in line to slightly better versus expectations.”
Also performing better than expected, he says, is Cisco’s routing business, in which it has been taking share away from Juniper both in the core and edge routing businesses.
The consensus of analysts calls for Cisco to report earnings of 39 cents on sales of $11.02 billion. Wadhwani rates it a buy with a target price of $20. That would get it close to the $20.23 its shares traded at the end of 2010. With Cisco trading down 79 cents today — or more than four percent, given the swoon in the wider market — the shares have fallen by more than 13 percent this year.