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

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.

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).

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).

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.

Keep Our economy Pumping Cisco!
DoTheMath 12/5/2012 | 12:21:04 AM
re: Sources: Cisco's Sales Light Given Cisco's ridiculously overpriced gear, there is a strong chance that a smart, hyper-aggressive, price-cutter will emerge to put the kibosh on their obscene gross margins (70% as of last quarter). I hope it is Dell; I am sure it won't be 3Com - they are damaged goods. Huawei is too unethical a company to count for enterprise customers.

You don't have to take on Cisco on high/medium end routers - it is enough to destroy the margins on ethernet switches. Cisco's puffed up earnings will deflate the instant enterprises figure Cisco switches aren't worth the money.

For the record, I don't work for any current or prospective Cisco competitor.
dogmeat 12/5/2012 | 12:21:05 AM
re: Sources: Cisco's Sales Light >Cisco cares much about stock options
>and internal power structure than its
>long term viability. Its keeps moving
>its product focus. Most of Cisco' s
>products are not the best in the market.

Cisco has one core business asset, the masses of drones in the Enterprises who reflexively order whatever Cisco is selling. This combined with totalitarian suppression of other vendor's equipment in their channel partners (I know a rep who was nearly fired for trying to position non-Cisco switches at SBC!) pretty much keeps the Enterprise market secure.

There are engineers coming back into the Enterprise market from Telecomms who are the only chance of leveling the playing field between Enterprise customers and Cisco. It will be a tough battle against big odds. If the tide turns in favor of customer, then Cisco will hurt that much more.

single mode figure 12/5/2012 | 12:21:05 AM
re: Sources: Cisco's Sales Light The valley is a serious thread and hard to follow in all it's segments. Given that the euphoria created by the flips, a lot of engineers got seriously wealthy, which got more people around the world frothing. Talented prospectors and goldminers from MIT, Stanford, Caltech, these are serious people. I don't think they are gone forever, just sidelined. VC's will be back. I see that Wilson, Sonsini, Goodrich and Rosati's parking lot looks empty and had a huge layoff.

Innocence lost, it might never be as fun again.
Honda_Elise 12/5/2012 | 12:21:08 AM
re: Sources: Cisco's Sales Light "Meantime Procket, a start-up, has started marketing much powerful routers than Cisco. So Cisco has no where to go."

Procket? Come on!! The only thing keeping
them alive is the amount of money they raised.
I'll be surprised if they make any dent in
Cisco's business before they run out of money.
BobbyMax 12/5/2012 | 12:21:09 AM
re: Sources: Cisco's Sales Light Cisco cares much about stock options and internal power structure than its long term viability. Its keeps moving its product focus. Most of Cisco' s products are not the best in the market.

"Dr. Chambers" makes appointment purely based on his whims. From a small company, called Crescendo Communications - a FDDI card manufacturer, he has appointed 5 persons to the rank of general Manager and President. How it is a small company of 25 people or so can produce a multitude of General Managers. This has a tremendous adverse impact on the business of Cisco and its product evolutions. It had a marketing person with no education in optical networking. Because of this Cisco's optical business never flourished.

Cisco has now drifted to storage business and plans to change the world. It has not published any hard data so that its claims can be verified.

So far Cisco has acquireed about 80 companies, but it has not hit the gold mines it was looking for. Its desire to enter the telecom world is also laughable.

Through its acquisitions of companies, Cisco fooled wall street analysts, and managed to raise its stock prices far beyond than its stock were worth. Now Cisco should ask the people who invested when the price $65 per share. It is very unlikely that ever go to that level again. This also suggests that the wall street analysts are redundant and can be trusted.

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.

BlueFox 12/5/2012 | 12:21:09 AM
re: Sources: Cisco's Sales Light Well, more than likely the reason why Cisco sales are light is because the economy is FUBAR, but...

Hopefully, customers have wised up and realized that it is not necessary to buy everything from one company. Buy what you need from a specialist, not from a reseller that just buys other companies without adding any value. Computers and networking equipment are now like hi-fi equipment. Network-o-philes will buy what works, and looks, the best.

This is a good trend since it will encourage innovation and startups, which will benefit all of us. Of course, this assumes the startup founders are acting with integrity, and not just role-playing in an attempt to be bought by Cisco.

The preceding is a Friday night, beer-induced, ramble by a long time Silicon Valley networking engineer who is tired of Cisco, and its business model. I would rather work for a small specialist who is good at what they do, versus a generalist who does everything.
single mode figure 12/5/2012 | 12:21:10 AM
re: Sources: Cisco's Sales Light GREEN;
What is most suprising is that John Chambers was lauded for the acquisition strategy, like Josef Straus of JDS, SDL, most of which is worth nothing. Their core business was fine, then they challenged telecom with Cerent, Pirelli, and many more.

I just don't get the thorough waste of shareholder capital. Will the valley fall further, yes, unless aliens from another planet come and rescue it from itself.

rjmcmahon 12/5/2012 | 12:21:10 AM
re: Sources: Cisco's Sales Light Will the valley fall further, yes, unless aliens from another planet come and rescue it from itself.

Well, since any intelligent life from other planets would perceive the human species (per our behaviors) as little more than lepers, we'll have to reject that option.

How about this game plan:

o Vote SBC off the island.
o Tell INTC they will be voted off the island unless they start making real commitments to the society in which they belong.
o Suggest to to the local press to stop writing articles about foolish solutions such as Wi-Fi and start writing articles about what it really takes to rebuild our communications infrastructure.
o Admit that the houses are really only worth half the value, at best.
o Put in some mass transit between the towns. Luxury tax the hell out of any automobile propelled by an internal combustion engine which rolls on rubber wheels.
o Evict all VCs who haven't created a real company in the last ten years.
o Invite the friends of Frank to participate in the world's largest lottery. Tell them we wrote the program that generates the "random" number. Have them buy the winning ticket. Then have Grey Davis tax the payouts for eternity.

Seriously, the valley does seem to have lost its bearings. It's going to take some leadership beyond the motivations of greed to get it back on its feet. Since the country, and world, depend on this economy, let's all hope the SV recovery begins sooner than later.
rjmcmahon 12/5/2012 | 12:21:11 AM
re: Sources: Cisco's Sales Light At the end Cisco will end up like IBM. not best-of-breed in technology but will do just fine with their service revenue.

What service revenue?

CSCO's fate may be more like that of SUNW. SUNW created a more valuable open access platform, in my opinion, but never could reach the masses. A pure IO company with no last mile infrastructure may have an even more challenging future.

PS. Agreed that DELL can shoot down the margins of these SV companies. Servers for $399 (and possibly much less) along with their new ink business makes one wonder when Heloise is going to enter the convent.

Everyone has made a big deal of Capellas being Abelard, since in the story Abelard ends up getting castrated. But no one has mentioned what happens to Heloise at the end of that story.

Anders: She ends up in a convent. She doesn't do so well either.

green 12/5/2012 | 12:21:12 AM
re: Sources: Cisco's Sales Light SMF,

I hope your prediction comes true. There is very little love for Cisco in the valley (excluding cisco employees ofcourse).

but I think they will manage to do another dose of fiddling with their numbers and manage to beat the street by one cent.. The 2 billion dollar write-off they took a while ago should help them out.

I don't think 3com-huawei is a threat to cisco yet. 3com burnt its bridges by exiting out of the enterprise market once before and huawei has legal troubles.

My bet is on Dell to kick some cisco butt. Switches account for 40% of cisco revenue. They are easy enough to build so Dell shouldn't have problem manufacting them. Dell already sells to the enterprise customer so the sales channels/relationships are already in place. Cisco won't stand a chance against Dell's pricing. The outrageous prices that Cisco charges for their switches has to come down.

At the end Cisco will end up like IBM. not best-of-breed in technology but will do just fine with their service revenue.
single mode figure 12/5/2012 | 12:21:16 AM
re: Sources: Cisco's Sales Light THE Horror! Brando and Chambers are both up the river and totally out of touch. Remember the days when they payed 7 billion for Cerent, guys like Ajib had to hire Armor Cars to take those Cisco dollars to the bank. What a contrast, all those deals, I'll make this prediction, Cisco falls and great will be it's fall, what's left of the silicon valley will look much as it did in the 1980's. Brave new world, THE HORROR!!
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