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Sources: Cisco's Sales Light

Cisco Systems Inc. (Nasdaq: CSCO) is almost two thirds of the way through its quarter, and the general consensus is that the outlook is deteriorating.

One Silicon Valley source, asking to remain unnamed, says they've "squeezed all the blood from the stone" during the last quarter and will have a hard time making things look good.

Meanwhile, Wall Street analysts are dropping down their expectations for the quarter, which ends April 30th and will be reported in early May.

This morning UBS Warburg lowered revenue estimates for both the April and July quarters. Nikos Theodosopoulos, the analyst who wrote the research note, says he expects the April quarter to be down 3 percent sequentially versus a previous estimate of down 2 percent.

Theodosopoulos says he changed his estimates based on checks with the company’s channel partners, as well as its component suppliers that have indicated weaker than expected sales in February and March (see Cisco Reseller Throws Cold Water). He is also predicting that sales in the seasonally strong July quarter will be flat versus a previous estimate of up 2 percent.

Cisco is known for managing its financials. But as the slowdown persists, it looks as though Cisco is finally feeling the pain.

“I think the enterprise market has gotten very challenging,” says Erik Suppiger, an analyst with Pacific Growth Equities Inc. “And I think that we are finally seeing the deterioration and prolonged stagnation of the market having some effect on Cisco.”

The biggest source of concern for analysts is Cisco’s book-to-bill ratio, which in April is expected to be below 1.0 for the third straight quarter. The book-to-bill ratio refers to the ratio of orders taken to products shipped and bills sent. In other words, a book-to-bill of 1.0 implies incoming business equals outgoing product. If the ratio is less than 1.0, it indicates that the company isn’t carrying over any orders into the next quarter.

Perusal of the markets suggests that sales in the United States, Germany, China, and France remain challenging for Cisco and are likely to be down sequentially, according to Theodosopoulos. These sales in aggregate represent about 50 percent of the company’s revenues.

While the April quarter is seasonally weak for Cisco, the July quarter has traditionally been strong. But given the current business environment, expectations for the July quarter remain low. Some analysts are also nervous about the impact of the war in Iraq on the July earnings. Suppiger says that a continuation of the war could further depress enterprise spending, which would ultimately hurt Cisco. He predicts that some enterprise customers may delay large projects if the war continues.

But war isn’t the only thing worrying some Cisco investors. As large companies like Dell Computer Corp. (Nasdaq: DELL) and the joint venture between 3Com Corp. (Nasdaq: COMS) and Huawei Technologies Co. Ltd. start to go after Cisco’s switch and router business, the company needs to show it can fend of these threats (see 3Com Taps Huawei in Enterprise Battle).

In the near term, UBS Warburg and other analyst firms say they are just waiting to see what happens. UBS Warburg maintains a Neutral 2 rating on the stock and the 12-month price target of $14.50.

A Cisco spokeswoman says it's Cisco's policy not to comment on future results.

— Marguerite Reardon, Senior Editor, Light Reading

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road__runner 12/5/2012 | 12:20:22 AM
re: Sources: Cisco's Sales Light wileC,

Okay so I mention a couple of your own proclamations and your response is a bunch of vague rhetoric and fact twisting ? Sticking to your track record of offering rhetoric without factual substance ?

The MDS stuff has announced last Fall and after going through quals, reseller certifications etc only started shipping for revenue recently, so lets wait and see. Where did you get the "1 year" from anyway ? Also the point was about your proclamation that Cisco was clueless about FiberChannel which was already disproven by the fact the the products introduced essentially changed the state of the art in the FC switching space.

Anyway I will let you continue to do what you have been doing so far: Ranting endlessly using empty fuzzy rhetoric, using unfounded references to Romans, goths and what-nots, name dropping, use of toilet metaphors (Oh by the way I could have followed your lead on that and twisted your moniker to WC but I'll let you continue handling that department).

Whats most humurous about this all is your proclamation that Cisco is doomed EXCEPT if Johm Chambers stops his current policy of improving EPS every quarter and goes back to his acquisition strategy. Apparently you must work for business development somewhere :-)
wilecoyote 12/5/2012 | 12:20:29 AM
re: Sources: Cisco's Sales Light Road-load:

And Andiamo's revenues would be....I mean the customers you didn't have to buy off....nothing.
A year later, Cisco still doesn't have meaningful storage revenues. Show me the money!

And dude, if you think this re-packaged 65K will kill off Foundry and Force10, I'm smiling and you're the funny guy.

Gotta love the Cisco believers!

road__runner 12/5/2012 | 12:20:32 AM
re: Sources: Cisco's Sales Light wilecoyote does it again with uncanny timing!

2 days before the Andiamo annoucements wilecoyote holds forth: "Cisco cannot spell Fiber Channel, Brocade has nothing to fear". Of course Cisco showed just two days later that they not just know a thing or two about Fiber Channel but can up the ante with their very first short at it.

Recently wileC has been ranting on and on about the fall of Cisco and the rise of new powers like Juniper, Foundry, Force10 etc. Of course soon thereafter Cisco makes announcements which suddenly make the likes of Force10 look like candidates for the list of "Startups that never lived up to their huge hype".

There's lots more such nuggets of brilliantly timed proclamations from Mr wileC.

Sad to see folks still living in the bubble (and yet funny).
wilecoyote 12/5/2012 | 12:20:35 AM
re: Sources: Cisco's Sales Light Yeah, Lightbulb, good analogy: Cisco and IBM. I personally think IBM is the best run technology company on the planet, and the best positioned with its strong blend of technology (micro-e all the way to services). So a good model for Cisco to try and achieve. But remember, IBM had to change horses twice to get where they are today.

Chambers is the greatest CEO in history from $1-20B. But can Cisco ride him to $80B? Not with the yes men he's got running the place right now. You need a Gerstner to come in, kick out all the cronies and hold people accountable, and you need better vision than "What do we do when we won't take development risks and we forgot how to buy the Crescendos of the world? I know, rather than build interesting products, let's improve our EPS every quarter and screw our employees and shareholders, not to mention customers, in the process."

The Cisco business model is flawed, Lightbulb. You have to see it. When your koolaid hangover wears off, tell us whether you think Cisco in its current form can ever really grow again. The channels can't wait for an alternative and neither can the customers. And meanwhile, everyone I know there is bored and uninspired. Feels like Rome must have felt around 400 A.D. when the barbarians came calling for the third time. The generals are fat, dumb and happy.
The Visigoths and Huns are Juniper, Foundry, and Symbol, they're pounding at the gates and the emporer is asleep.
Light-bulb 12/5/2012 | 12:20:37 AM
re: Sources: Cisco's Sales Light Do believe I was doing a Direct 1-1? The discussion was rather... Could Cisco turn into an IBM. Not as in a direct comparison today. If your old enough to remember From 1991-1993 IBM wasn't fairing well at all. Do you remember what happened? The $12/share? All I was saying is if Cisco Followed IBM... Market Dominance, Market loser, to go on to Strong Market Leader and incredible Service Revenue... well it wouldn't be so bad.

Cheers,
excitedPhoton 12/5/2012 | 12:20:38 AM
re: Sources: Cisco's Sales Light Light-bulb shone forth:
Let me say that it is VERY possible for Cisco to turn into an IBM... Err what is IBMs valuation? Stock price is what $80?? yea that would be bad news ehh?

Puh-lease! Do you have any concept of what IBM is? Compare market caps from the hype days to today of Crisco and IBM. Crisco isn't anywhere close to stable, falling from $80 to $13.

For Crisco's P/E to match IBM, either its share price has to drop 20% or its earnings have to go up 20%. For Crisco's market cap to match IBM, its share price would have to go to $19, and then to match IBM in P/E, it would have to increase earnings by 75%. Rough numbers, but you get the idea. I know IBM, and Crisco, you ain't no IBM.

(IMO, this in no way implies IBM is a better place to work at, nor that crisco is worse - it's just a comparison of two different types of companies, stable value company vs. risky growth company).

-ep
ex-IBMer
reoptic 12/5/2012 | 12:20:45 AM
re: Sources: Cisco's Sales Light Cisco certainly has their share of challenges but they are far and away the most successful networking company in history and their is more to be learned from their success than their problems. Yes they will come under attack from lower priced vendors but that is inevitable as the industry matures and Cisco can lower costs and move manufacturing to Asia too if they want to get ahead of the curve -- don't put it past them. Most ridiculous assertion is about Procket, the most overhyped company in this industry, which has a few very nice high density line cards and nothing else yet in terms of an account base and a proven deployed product. Their marketing claims sound like a grab bag from every other router company out there with minimal substance behind them...only ones hyping them are bankers desperate to get some kind of IPO or M&A business...
willrouteforfood 12/5/2012 | 12:20:48 AM
re: Sources: Cisco's Sales Light "A chinese company by the name Huawei poses considerable threat to Cisco' router business because Huawei's products are much superior and priced very reasonably.

Cisco has filed a fictitous law suite against Huawei as one of its employees/contractors copied some very simple code from Cisco's router code. The strange thing is that Cisco itself was involved in appropriating technologies from Lucent Technologies.

Meantime Procket, a start-up, has started marketing much powerful routers than Cisco. So Cisco has no where to go."

OK, Bobby, I hate to do it but I have to call "shananigans." Wow. I could have sworn you used to post intelligent and well written replies. What happened to that guy? Or, to out another conspiracy theory into play, has someone assumed Bobby's identity..... ;)

A couple of quick points.....

First, Huawei puts out crap. Albeit very cheap, it is crap compared to Cisco's gear. Just because a company can reverse engineer a box does mean they can write the code necessary to run it properly (they can steal it, as we have seen, but in the end it still does not perform as well). Writing code that works and scales is a difficult business. If it were easy, there would be 20 Cisco's out there. I truly think that Huawei is only a real threat in country's like China where politics has a great deal to do with the decision to purchase. Just a side note, no, I do not work for Cisco and I am actually not a big fan. The truth is the truth.

Second, relating to the ficticious law suit. That is absurd to even post. You only lose credibility by writing something like that. I think it is pretty clear that they are guilty of the charges. It doesn't really matter if an employee, or contractor as you write to somehow lessen the degree of guilt, copied the code or not. They broke the law and all but confessed to the infraction. You should read the story from last week. It is pretty clear. I am unaware of the Lucent vs. Cisco deal you mention. But, that is irrelevant. Lucent can take that up with Cisco.

Third, and lastly, Procket is indeed "Marketing" much more powerful routers than Cisco offers today. One could also put it as they are marketing much more powerful, unproven, over-hyped, and incredibly unknown routers (although I hear that will change in a week or two). One could also add that they are an incredibly small company that is pretty much incapable of actually supporting a large account (let alone several) that would put any a dent in Cisco's business. I hate to say it, but they are toast. I take nothing away from Tony Li. I am sure he is a brilliant man. But, one man does not a success make (especially in today's environment).

WRFF
single mode figure 12/5/2012 | 12:20:48 AM
re: Sources: Cisco's Sales Light Mr. John Chambers is a brilliant tactician, bought and grew when cheap now struggling to make it all have meaning, that is a true survivor..good luck as i am on a steamer to costa rica to relax...........
Light-bulb 12/5/2012 | 12:21:02 AM
re: Sources: Cisco's Sales Light Good Grief! Do I hear a sense of how do you say... Cisco Haters out there? Why? Because they are still profitable? Oh wait thats the key isn't it... THEY ARE STILL PROFITABLE! You want to bash Cisco you have every right. But here are some facts you may not understand. First off I know the Cerent Acquisition very VERY well. Yes they paid us 6.9B for a product that REVOLUTIONIZED Telecom! Oh please PLEASE someone discredit this? The 15454 Forever changed the SONET ADM marketplace! You do pay dollars for something that is new, and original. Now what has that meant to Cisco? Everyone say it with me now... Almost 4B in revenue since the Aquisition. Have they made money on their investment? NOPE, but guess what in just a few years they are 66% of the way there even in this Garbage economy. You talk about Dell Switches? Please! They don't hold a Candle to the robustness, scalability, and options available on ANY of the higher-end Catalyst line. You want to compare 6500 with another vendor? BRING IT! The box won't quit! With the new 720! Good GRIEF! The box is Terabit capable, and has been for many moons. Were not talking Slideware people were talking facts.
And the infidel who said "Huawei is better product" are you nuts? Its a copied product! Enough said. Kick that company the hell out of the US and impose a Financial Penalty large enough to make them shrivel. I hear many bitter people with minimum fact. "Cisco Is over priced" "cisco provides no value" well guys, lets set the record straight... if they didn't they wouldn't be here now.
Let me say that it is VERY possible for Cisco to turn into an IBM... Err what is IBMs valuation? Stock price is what $80?? yea that would be bad news ehh?
Cisco can weather the storm with 18B in the Bank, they WILL be left picking up bargains. You call it whatever you like you hate them all you like "How Cisco is hated in San Jose" BS!!! Do you have ANY IDEA HOW MUCH REVENUE they pump into San Jose? The CITY OF SAN JOSE LOVES THEM! As does the State of California. So take that BS elsewhere please, your completely off-your-rocker.
So as to other acquisitions of Cisco, well I don't know them intimately but let me ask you... what other company has had more successful acqs then Cisco? No One.

Cheers,
Keep Our economy Pumping Cisco!
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