Cisco's Q4 Could Be Quiet
Not that Cisco's news has been rosy, considering the company just laid off thousands and is trying to patch a slow leak in gross margins. Investors will be looking for Cisco's first-quarter forecast on Wednesday, and it's likely to be as conservative as possible, analysts wrote in reports issued Monday morning (before the market turned to quicksand).
"We believe sentiment remains negative and imagine many already expect light sales," writes Simon Leopold of Morgan Keegan & Company Inc. .
Cisco is still expected to make money -- roughly 38 cents per share in non-GAAP net income on revenues of nearly $11 billion. But the overall feeling is that the company is going to keep expectations low for its first quarter, which ends in October.
One big problem is that public-sector spending isn't going to recovery anytime soon. This represented about 20 percent of Cisco's revenues, writes George Notter of Jefferies & Co. Inc. . He and Leopold are expecting revenues in fiscal 2012 (ending July 2012) to increase only about 4 percent compared with 2011; the consensus estimate from Thomson Reuters is for closer to a 6 percent rise.
Another problem is a continued price war in Ethernet switching, something Brocade Communications Systems Inc. (Nasdaq: BRCD) mentioned in its earnings report last week. (See Brocade Feels the Pain.)
"We disagree with commentary suggesting a more aggressive Cisco; while we see some evidence of more frequent discounting, channel feedback continues to point to Cisco being priced out of the market," writes analyst Joanna Makris of Mizuho Securities USA Inc. .
Makris thinks Cisco will need to lower its gross-margin targets.
The other thing to look out for Wednesday would be any hint of Cisco cutting more product lines.
Many newer products bother Notter, including easy targets such as the Cius and umi, and also the MDS 9000 and UCS, cornerstones of Cisco's data-center strategy. "We expect that the organization will eventually have to deal with these businesses," he writes. (You have to picture him with ominous lighting for that one.)
He thinks Cisco took a good approach in trying to expand into new markets but spread itself too thinly doing it.
Cisco sent out layoff notices last week, after its fiscal year closed, so it's going to be a while before cost savings emerge on that front. (See Cisco Simplifies; Cuts 6,500 Jobs and Did Cisco Cut Deep Enough?)
Analysts have been noting that even with restructuring underway, Cisco's fourth-quarter expenses will be higher than they were a quarter ago or a year ago.
— Craig Matsumoto, West Coast Editor, Light Reading