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Optical/IP

Cisco's Q3 Looking Plain

Analysts expect some unsurprising numbers out of Cisco's third-quarter earnings, slated for release tomorrow.

Cisco had predicted growth of zero to 2 percent for its April quarter, and analysts don't see much reason to argue with that. The result should be "good but not great results," writes analyst Mark Sue of RBC Capital Markets in a recent report.

Wall Street expects Cisco to report $6.15 billion in revenues and 22 cents earnings per share, according to Reuters Research. That would represent a bit more than 1 percent growth over second-quarter sales of $6.06 billion (see Juniper Touts IPv6 Contract).

Many investors will be focused more on Cisco's guidance for its fourth quarter, which ends in July. Chambers said last year that he expects 10 to 15 percent growth for fiscal 2005, and he's more recently honed the figure to be around the 12 percent mark. But that puts pressure on Cisco to report sequential growth of more than 6 percent for the fourth quarter.

Many analysts think Cisco will make it, as July tends to be a strong quarter for the company. Reuters Research lists a $6.47 billion consensus forecast for fourth-quarter revenues -- roughly 5 percent growth. That would give Cisco just less than 12 percent growth for 2005.

Steve Kamman of CIBC World Markets predicts in his report that Cisco will "reiterate its previous guidance for 12 percent to 13 percent growth for fiscal 2005, implying a range of 6 percent to 9 percent sequential growth" for the fourth quarter. "We see this as reasonable on year-end and normal seasonality."

Others are more skeptical. In a report issued today, Tal Liani of Merrill Lynch & Co. Inc. is "conservatively" predicting 5 percent growth for the fourth quarter.

Any good news could provide a push for Cisco's stock price, which has spent the past year on the decline even in the face of good news (see Cisco Sees Big, Bold Growth). Looking at the last 12 months, Cisco stock is down more than the Nasdaq composite.

Not to worry, CIBC's Kamman says. He points out that the Nasdaq composite is down 11.3 percent on the year, while a telecom basket he calls "Everyone But Cisco" is down 28.3 percent.

Numbers aside, analysts will be looking for Cisco's response to the new purchases by rival Juniper Networks Inc. (Nasdaq: JNPR) -- particularly the deals for Peribit Networks Inc. and Redline Networks Inc. announced last month. Of interest is whether Cisco, seeing its rival's fashionable new WAN optimization gear, feels the need to catch up. (See Juniper Takes Two: Peribit & Redline, Peribit Deal: More to Come, and Cisco Prowling WAN Optimization?.)

Analysts also expect continued strength from Cisco's "advanced technology" division, made up of six technology groups: wireless LANs, storage, optical, home networking, IP telephony, and security. They've been hot growth categories for the company (albeit starting from small bases, storage in particular) and have been hot buttons for Chambers's latest public appearances (see Chambers Sells Self-Defending Networks and Chambers Shouts About Security).

RBC's Sue thinks advanced technologies could represent 22 percent of sales, up from the second quarter's 19 percent. Cisco has stated it's considering at least six more candidates that could join the "AT" pool, so analysts will likely grill Chambers for hints of any new additions.

Another area worth watching is Cisco's CRS-1 Carrier Routing System. Juniper has gained core-router market share during the past year, but some have said that's because the CRS-1 had yet to ship. Now that the box is picking up revenues for Cisco, analysts will be interested to see if Juniper's gains will be reversed.

— Craig Matsumoto, Senior Editor, Light Reading

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