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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 :-)
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