Is Cisco's Q1 Contagious?
And with the company's shares down as much as 17 percent this morning, the big question is whether yesterday's earnings debacle is a Cisco-only event.
In case you missed it, Cisco reported first-quarter earnings (for the quarter ended in October) that were on target. The problem was in its forecast, which says second-quarter sales will be around $10.2 billion, compared with analyst expectations of $11.1 billion, according to Thomson Financial . (See Cisco Reports Q1.)
At press time, Cisco shares were down $3.68 (15%) at $20.82.
So, is it just Cisco? The surprises came from the non-federal public sector and the cable industry. Reports this morning are pointing out that Cisco has an unusually high exposure to government sales, an area where customers are awash in debt.
The Cable shortfall, meanwhile, was particularly ugly, with sales down 30 percent from a year ago. But that could be a phenomenon particular to Cisco and Motorola Inc. (NYSE: MOT), the set-top-box duopoly, writes analyst Mark Sue of RBC Capital Markets in a note this morning.
Even so, Sue suspects there's more going on. "The magnitude of sequential revenue decline implies it may be somewhat industry related and not just Cisco specific," he writes.
Simon Leopold of Morgan Keegan & Company Inc. is more sanguine. "The cable TV and non federal public sector markets are unlikely to recovery quickly yet healthy traffic growth and network evolutions bode for a recovery," he writes.
Cisco still expects revenues to grow 9 to 12 percent in fiscal 2011, which ends in July. That implies revenues of $43.6 billion to $44.8 billion.
To get there, Cisco would need quite a comeback in its third and fourth quarters. Both would have to exceed the $10.8 billion in revenues that Cisco reported for its fourth quarter of fiscal 2010. "We believe this is unreasonable and unnecessarily sets high expectations," writes analyst Ittai Kidron of Oppenheimer & Co. Inc.
— Craig Matsumoto, West Coast Editor, Light Reading