Waiting for Cisco
By and large, Cisco is expected to meet or beat Wall Street's expectations for the quarter ended July 29, 2001. The Street sees Cisco earning 2 cents a share on revenues of $4.3 billion. If it meets these expectations, revenues will be about 25 percent worse than its results for the comparable year-ago period. Cisco's guidance for the quarter is in a revenue range of $4.22 billion to $4.69 billion, or flat to down 10 percent from its fiscal third-quarter 2001 results.
The big item to watch: Cisco's internal growth estimates, or financial guidance, for the quarters ahead.
Salomon Smith Barney analyst Alex Henderson wrote in a recent report that he thinks Cisco will give positive guidance. "Certainly, Cisco is not going to go out on any limbs, but we think the solid book-to-bill [ratio] and improved activity will likely make it likely Cisco gives guidance of flat revenues to up modestly Q/Q [quarter to quarter]."
Positive financial guidance would be a refreshing change from the news of the last few quarters, in which Cisco took billions of dollars in write-offs, purging its balance sheet of a lot of acquisition-related goodwill and excess inventory. Last quarter alone, Cisco took a $1.17 billion restructuring charge against earnings and took an excess inventory charge of $2.2 billion.
Cisco's stock price, interestingly, has been in the $19 range, very close to the price it held after its last earnings report -- the worst in its history. The stock's 52-week low came on April 4, when its shares sank to $13.19.
That suggests that Cisco's stock is close to finding a bottom, barring any further bad news. "When you see [so many write-offs], you're going to see them say, 'Hey, our stock price is at its lowest -- let's test the waters,' " says Brian Kinard, a partner at Blueprint Ventures. "When they do test the waters, people will begin to see some light coming through the clouds."
Indeed, market stability and corporate earnings guidance are among the things that investment bankers are eyeing to see if the market may be returning from its lowest point (see M&A Activity Continues to Crawl). Notably, Cisco has bought two companies so far this year versus the 15 it had acquired by this time last year (see Cisco to Acquire Allegro and Cisco Buys 10-Gig Chip Maker).
Although Cisco continues to announce positive strides with service providers, such as an expanded relationship with Qwest Communications International Corp. (NYSE: Q) announced today (see Cisco Wins Qwest Deal), the company remains mostly an enterprise equipment vendor. Analysts at A.G. Edwards guessed that only about 20 percent of Cisco's last quarterly revenues came from its service provider line of business. Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU), the two giants of the telecom equipment space, haven't given any financial guidance in several months.
That, of course, doesn't lessen the impact of what Cisco will say. "Just as Microsoft is able to tell us more than any other single source about the nature -- the strengths, weaknesses, growth trajectory -- of the global PC industry, so is Cisco able to do the same thing for the global networking industry," said Donald Luskin, CEO of MetaMarkets.com Inc., in remarks this morning.
Shares of Cisco closed down 0.51 (2.54%) to 19.54 in trading Monday.
- Phil Harvey, Senior Editor, Light Reading