Cisco’s recent history is peppered with instances of missed quarters that deliver on results but offer poor outlook. After a restructuring that saw the company cut 6,500 jobs, kill its consumer-oriented products, sell off its Mexico-based manufacturing operations to China’s Foxconn and recalibrate its long-term growth expectations with the financial community, the pressure is on Cisco and its CEO John Chambers to show that the changes were not only for the better, but that they’re taking hold.

Cisco is supposedly back in fighting trim. A new ad campaign, coupled with aggressive strategies in new market areas like cloud computing, coupled with a pivot away from unsuccessful consumer products, suggest that the company is back on track. But can the apparent progress made last quarter stick?

Analysts are expecting a profit of 43 cents a share on sales of $11.23 billion. Analyst Sanjiv Wadhwani of Stifel Nicolaus expects the results to come in slightly better than that. Writing in a research note to clients last week, he checked Cisco’s channel and found that sales of switching products, weak in recent quarters, appears on track to better than expected. Router sales appeared stronger versus competitors, specifically Juniper, despite a relatively weak environment for IT spending overall.

Geographically, spending in the U.S. was steady and, surprisingly, so was spending in Europe, except for in southern European countries like Greece and Italy, were the sovereign debt crisis has been so acute.

Weaknesses will be apparent, Wadhwani says, in sales of set-top boxes, suffering, in part, because of the shortage of hard drives as a result of the flooding in Thailand. Gross margins, a key metric of profitability, may be down slightly in part of a large sale of aggressively priced routers to China. One bright spot of note: During the quarter, Cisco announced that its Unified Computing System — its cloud computing hardware offering — has reached 10,000 customers and is, roughly, a $1 billion business.

Wadhwani says he expects Chambers to set a positive tone in his guidance. “As far as orders are concerned, feedback has been generally positive and consequently we expect the company to provide solid guidance for April. We also expect a positive tone from CEO John Chambers with optimism about the U.S. leading the world in an economic recovery.” That would be a nice change from the depressing results announced a year ago.

According to Rohan, the Fire is selling very, very well. So well, in fact, that on Sunday evening he raised his estimate for fourth-quarter Fire sales to six million units from five million, proclaiming the device a true tablet market contender.

“Kindle Fire has staked out an important market position due to its loyal Amazon customer base and attractive (low) device pricing,” Rohan said in a note to clients. “We believe the lower hardware price will correlate with high e-book and video content attach rates.”

In other words, there’s some serious potential upside to be had in incremental e-commerce spending via the Fire, and Amazon’s aim is to milk it for all it’s worth.

“We believe that software attach rates correlate inversely with the hardware price. From Amazon’s perspective, this could drive real upside in its North American media segment revenues,” Rohan concludes. “From a cost perspective, the shift to digital delivery of content could help Amazon avoid costly free shipping subsidies. Hence, we believe there is a great deal more to the Kindle device strategy than most have discounted.”

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.

Cisco also did what many analysts have been urging for some months and reduced its long-term growth targets to levels it has a better chance of meeting. It said it now expects revenue to grow annually at 5 to 7 percent through 2014 and called for operating margins in the 25 percent range, which is pretty much in line with what some analysts had suggested.

So were they convinced? A little. John Marchetti of Cowen and Co. called it “a positive analyst day.” The more aggressive stance versus competitors and the realistic targets should give the shares a “boost over the near term,” he wrote in a note to clients today. While Cisco’s valuation, which is at about nine times Marchetti’s forward EPS for the 2012 calendar year, is arguably low, he kept his rating at neutral. “Shares look cheap,” he said, “but we do not see a near-term catalyst to drive the stock higher and believe the muted growth outlook and macro-headwinds especially in light of Cisco’s exposure to government and European customers.”

Sanjiv Wadhwani of Stifel Nicolaus was more convinced. In a note to clients today he wrote that “the worst seems to be behind” Cisco following a product transition in its switching business that was responsible for at least part of its troubles over the last few quarters. Moreover, the pricing environment in switching — which had been driven down in part by an aggressive Hewlett-Packard campaign and profit margins on many of its switching products — are “approaching historical levels.” On top of that, he says Cisco has some moves it can make to trim some operational expense — he called them “opex levers” — to make sure that per-share earnings grow faster than sales. He rates Cisco shares a buy with a $20 price target.

Cisco sees Juniper as being “spread too thin” in the marketplace right now, Wadhwani writes. But Cisco’s line of attack won’t necessarily be lower prices. Indeed, the opposite may be true, he wrote: Cisco “will intensely focus on gross margins going forward.”

But that’s not to say there won’t be other weapons, like marketing trash talk. Here’s a sample: Cisco has launched a site where it accuses Juniper of “overpromising and under-delivering.” If there’s more to come like this — frankly, from both sides — the fight should be fun to watch.

How big a toll? That one’s up for debate: Richard Rosenblatt’s company says the changes, which affect the traffic that Demand’s sites get from Google, aren’t significant enough for the company to change its guidance.

Most of Wall Street disagrees, and has been hammering Demand shares for the last couple of weeks. DMD is now trading around $16.70, down from a peak of more than $27 earlier this year.

In a note published today, Stifel Nicolaus analyst Jordan Rohan argues that investors are overreacting (Stifel helped take Demand public in January), and keeps his “buy” rating intact. A worst-case scenario, he says, is that the Google changes will clip Demand revenues by 10 percent and EBITDA by 20 percent–but Wall Street has pummeled Demand much more than that.

Rohan (and many others) are very interested to see what Demand says on its May 5 earnings call:

EHow and Demand Media had a great deal of momentum all the way through the first quarter and into the second quarter. But there is now this new variable with which to contend–it is hard to forecast traffic if there is volatility in index rank. How does that all balance out? To the extent that is possible to broaden the range of possible outcomes for the year, without abandoning the guidance altogether, we believe that would be incrementally positive, at least compared to current levels of fear. Maintaining guidance for full year revenue and EBITDA would be even sweeter, if possible. The “what can be done” part of this is key, in our view–own up to the weaknesses, identify the steps required to address those weaknesses, and correct course. Quickly.

Which sounds great. The problem for Demand (and many other publishers, including the New York Times, which said that its About.com had been beaten up by algorithm changes, too) is that it’s entirely possible that Google isn’t done adjusting its search formulas.

And what if it’s just beginning to overhaul search?

If so, every Google-dependent publisher is going to have a very hard time responding to each and every change the search giant makes. Which means that Demand Media’s fortunes will be in flux for some time. And it will be very hard to make Wall Street feel good about that.

In a new research note, Stifel analyst Doug Reid argues that RIM has hyped the PlayBook well beyond the earnings-per-share contribution the laggard tablet might potentially make. “Despite minor hardware improvements, the PlayBook with WiFi remains less competitive relative to both iPad 2 and Xoom,” Reid writes, before reciting the same list of perceived flaws that bother other critics. “First, PlayBook’s lack of basic e-mail and calendar functionality (standalone) immediately gates the device’s addressable market to BlackBerry users, a market of only 55 million,” he explains. Second, the PlayBook’s app ecosystem is piddling at best, thanks to a lousy developer experience (which, to be fair, RIM is working to improve). According to Reid’s estimates, PlayBook will have fewer than 100 apps at launch–assuming it doesn’t debut with support for Android apps. Then there’s its screen size. Reid beleives that consumers familiar with the iPad’s 9.7-inch screen will likely view the PlayBook’s smaller 7-inch screen as a deficit.

And finally, the most troubling reason of all: the PlayBook’s ship date. It arrives at market after both the iPad 2–the market-leading tablet’s latest iteration–and the Xoom–which is said to be the first truly comparable competitor to it. Worse, it risks being lost in the flood of tablets launching over the next few months.

Late to market with a first generation tablet and an inferior value proposition. That seems to be RIM’s predicament today. Though who knows. Perhaps there’s some hidden competitive advantage here that’s being overlooked, or one that we haven’t yet seen.

But until then, here are the reasons the Daily won’t work, followed by the reasons it will. They’re both from the same guy–Stifel Nicolaus analyst Jordan Rohan. From his note published yesterday:

CONS:

1. Consumer Acceptance Could Take Time: Nobody really knows the future of the iPad daily, and the official launch party is not “where the rubber meets the road” in terms of understanding consumer acceptance of such a new concept.

2. Hype or Reality?: Hype does not necessarily translate into market share, revenue, or cash flow.

3. Control: Apple tends to control its environment so tightly that there may be clashes down the road with apps offered by Yahoo!, Google, Facebook, AOL, Amazon, and a host of other Internet companies. This could reduce overall profit potential for iPad publishers.

4. Understanding the revenue model will be key. Online ad networks and other intermediaries could be left on the outside, looking in, if the iPad remains a premium offering with high CPMs. The subscription model is somewhat irrelevant unless it scales to support a vibrant advertising environment. We will have to wait and see on that key point.

PROS:

1. Product Differentiation: News Corp could marshal the resources of its newspaper, cable television, studio, and Internet divisions to differentiate the product from most other companies.

2. Apple is a powerful ally. The recent track record of product innovation and commercialization at Apple is unmatched. If Apple is willing to throw its weight behind this initiative, along with News Corp, then the chances of success are high.

3. Playing Offense: If News Corp can make an iPad daily work, then other media companies will begin to play offense as well. And that is generally a good thing for innovation, and ultimately for advertisers and marketers alike.

4. Makes More Sense than Wired for iPad: Mid last year, we attended a pre-launch event for Wired magazine’s iPad initiative, which Conde Naste marketed at a surprising $5 per copy. The product was beautiful, but results were mixed at best. And it was a monthly, not a daily, which implied that the frequency of visitation was much lower.

Rohan, by the way, is ultimately bullish on the Daily, and he was that way before he got a look at the thing at Rupert Murdoch’s apartment last night. Now he’s very, very bullish, but he’s been embargoed from talking about it until noon today.

The Daily’s formal unveiling will start an hour earlier, at 11 am ET, and I’ll be liveblogging then; check back here in a bit for a link.

Until then, you can check out this preview from CNN, which got an “unofficial sneak peak” [sic] at the Daily. Spoiler alert! It reads a lot like the preview I ran yesterday, written without the benefit of any peaking [sic].

(Disclosure: This site is also owned by News Corp. Which didn’t get me an invite to Murdoch’s party or, per above, any advance look-sees).

This week, Google (GOOG) complained that Apple’s new rules on sharing iPhone and iPad user data with advertisers unfairly advantages the company’s own iAd service over rivals like Google’s AdMob–and the government is reportedly looking into the issue. There’s also continued grumbling over the company’s decision not to support the Adobe (ADBE) Flash standard on the iPhone/iPad platform, and the Feds are apparently looking at that issue, as well.

Stifel Nicloas analyst Rebecca Arbogast reviewed the situation in a research note this morning, and finds that Apple has justifications in both cases that support its policies.

Read the rest of this post on the original site

Ho doesn’t formally cover SanDisk: he’s more interested in the implications for some of his coverage companies, including Teradyne (TER) and Verigy (VRGY), both of which he rates “Buy.” Those two companies make chip test equipment.

“We believe the company (and the overall NAND flash market) has seen a pickup in handset demand, as well as continued strength in many Apple-based products (including the iPhone 3G S),” writes Ho.

Read the rest of this post on the original site

Yahoo shares leapt on the news, broken in this column Friday and confirmed by others later, that its CEO, Carol Bartz, was in discussions with Microsoft CEO Steve Ballmer about a possible commercial advertising and search partnership.

Yahoo’s stock rose 7.05 percent, or 95 cents a share, to close at $14.42.

In honor of that, Yahoos today must be going to the Internet giant’s homepage and clicking on its famed exclamation point, which causes the page to, well, sound off with a hillbilly Yahoooooooooo!

It is a stellar rise, considering that Yahoo (YHOO) shares have been depressed for a long while, with minor ups and down, but sitting in the lackluster low teens for a while. The stock has not seen close to $15 a share since last October, in fact.

Microsoft (MSFT) shares got no boost from the news, declining a scant .41 percent, or eight cents a share, to close at $19.59.

That might change if the talks between the pair and other execs at both companies, which are preliminary and wide-ranging, result in a significant deal.

There are many scenarios, such as one in which the companies swap online advertising assets and deliver services to each other.

In that interesting plan, Yahoo might take over all of Microsoft’s display and premium advertising business to sell along with its own, while Microsoft would run the search advertising business for the pair.

Such a deal, which plays to each company’s strengths, would bind the two closely together, even though they still compete on many other fronts in the Internet space.

Plus, it would give the two a major advantage in display advertising over search ad giant Google (GOOG).

Stifel Nicolaus analyst George Askew in a note said that display ad data show that Yahoo and Microsoft together reached 86 percent of online unique users in a recent survey. Google had a 78 percent share, mostly via its YouTube video service unit.

Most other Wall Street analysts were bullish on the idea of a Microsoft-Yahoo deal too.

Wadhwani this morning noted that the company’s enterprise business appears to be down 15-20 percent from the December quarter, with carrier-related business down 10-15 percent. He now sees revenue for the March quarter of about $789 million, below the bottom end of the company’s guidance range. He cut his 2009 EPS estimate to 80 cents, from 87 cents; for 2010 he goes to $1.08, from $1.10. Wadhwani sees June quarter revenues slipping further to $781 million.

Read the rest of this post

Stifel Nicolaus analyst Scott Devitt thinks the rally has gotten a bit out of hand; he downgraded the shares this morning to Sell from Hold, asserting that fair value is about $28, or well below the current level.

Read the rest of this post

Apparently, everything but Nextel is on the table.

Or, rather, Nextel is still on the table, but no one’s interested in buying it at the $5 billion+ price Sprint’s asking. Said Chris King, an analyst at Stifel Nicolaus, “I’m not sure they were going to see that kind of valuation, especially in this type of capital markets environment.”

Stifel Nicolaus analyst Scott Devitt this morning upped his rating on Netflix (NFLX) to Buy from Hold, setting a $25 target price. Devitt notes that the stock is off 40 percent since late September, a period in which the S&P 500 is off 25 percent.

“In the current economy,” he writes, “Netflix’s value-oriented offering stands out to us as a compelling alternative to more expensive entertainment alternatives.” Devitt notes that the average Netflix customer paid a base of $13.60 a month–$163.20 a year–for two-at-a-time unlimited DVD rentals. By contrast, he notes that a night at a “Ticketmaster event” for a family of four on average runs $240. Take a family of four to the movies and ply them popcorn and soda, and you’ll pay $70. “Due to its relative value, we believe the Netflix existing subscriber base may remain more stable in the downturn and new subscribers could improve once the initial shock of the past few months subsides.”

Read the rest of this post

Google (GOOG), for its part, continues to claim its pact with Yahoo (YHOO) is beneficial to competition, and seems prepared to go through with it. “While there has been a lot of speculation about this agreement’s potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact,” the company said after the Association of National Advertisers sent a letter to the Justice Department opposing it. Of course, the flip side of that is that it might be premature for Google to move ahead with the agreement before regulators say they’re comfortable with it. Said Stifel Nicolaus analyst Blair Levin, “it would be risky … to proceed if they are getting signals that the agency has serious concerns.”

The deal is an obvious coup for the big-box retailer, which, with the exception of Apple (AAPL) and AT&T (T), has a national exclusive on the device through Christmas. Just a few weeks back, Stifel Nicolaus analyst David Schick suggested that availability of the iPhone only at Apple and AT&T Wireless stores could “hurt demand or at least foot traffic to Best Buy and Circuit City.” Now that appears to be the fate of Circuit City (CC) alone.

“It solidifies us as the place to go for the cool stuff,” Best Buy Mobile President Shawn Score told Reuters. “Our customers are looking for this product. We do believe that broadening our assortment and having iPhone in our stores is certainly going to be very important [heading into the holiday season].”

Important for Apple as well, assuming the company works through its iPhone shortage problems. Offering the device for sale in Best Buy’s (BBY) 970 stores will certainly make it quite a bit easier for Apple to reach its oft-stated goal of selling 10 million iPhones in 2008. Not that it really needs any help in that department. According to Piper Jaffray analyst Gene Munster Apple is on track to sell 4.47 million iPhones in this quarter alone.

The deal is an obvious coup for the big-box retailer, which, with the exception of Apple (AAPL) and AT&T (T), has a national exclusive on the device through Christmas. Just a few weeks back, Stifel Nicolaus analyst David Schick suggested that availability of the iPhone only at Apple and AT&T Wireless stores could “hurt demand or at least foot traffic to Best Buy and Circuit City.” Now that appears to be the fate of Circuit City (CC) alone.

“It solidifies us as the place to go for the cool stuff,” Best Buy Mobile President Shawn Score told Reuters. “Our customers are looking for this product. We do believe that broadening our assortment and having iPhone in our stores is certainly going to be very important [heading into the holiday season].”

Important for Apple as well, assuming the company works through its iPhone shortage problems. Offering the device for sale in Best Buy’s (BBY) 970 stores will certainly make it quite a bit easier for Apple to reach its oft-stated goal of selling 10 million iPhones in 2008. Not that it really needs any help in that department. According to Piper Jaffray analyst Gene Munster Apple is on track to sell 4.47 million iPhones in this quarter alone.

Devitt says the company has had two consecutive quarters of mid-20 percent growth, but that it has had “fairly easy comps,” and that growth could drop into the low-to-mid teens by 2009. “Investors believe that Overstock is doing well for the same reasons TJ Maxx is doing well, but Overstock transitioned away from the excess market two years ago and sells more traditional retail merchandise in its current form,” he writes.

Read the rest of this post

But for a variety of reasons, this seems like a long shot idea. Scott Devitt, an analyst at Stifel Nicolaus, says bluntly, “not a chance.”

Read the rest of this post