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Ethernet equipment

Is Cisco's Q1 Contagious?

Another run of Cisco Systems Inc. (Nasdaq: CSCO) optimism has ended.

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

online123 12/5/2012 | 4:18:44 PM
re: Is Cisco's Q1 Contagious?

CSCO is retro.  The world is changing and the main thing changing there, other than the constant management drain, is their talk.  Their products maintain an old school expensive, proprietary, under powered LAN-era aura.  Where is their L4-7 stuff?  A CDN product?  Why, in the era of NFLX and Internet TV is anyone surprised at weakness in set top boxes.  This is the first of many disappointments.  Really, who is loading up on UCS or Nexus.


Their most credible problem lies in government spending.  Even there, the real move may be to more efficient on-line government.  However, budgets are under pressure.  Chambers sees this going on for "several quarters", ie at least until next summer.


 


 


 

spc_markl 12/5/2012 | 4:18:42 PM
re: Is Cisco's Q1 Contagious?

Craig,


I am afraid that "retro" is exactly correct.  Despite marketing presentations suggesting otherwise, much of its switching and routing revenue has tended to come at the low end (albeit high-margin).  It is quite possible that its ability to continue to milk this sector is becoming more difficult.


Mark Lutkowitz, Telecom Pragmatics

Pete Baldwin 12/5/2012 | 4:18:42 PM
re: Is Cisco's Q1 Contagious?

WSJ analysis includes a suggestion, by Ittai Kidron of Oppenheimer, that Cisco is losing market share -- or at least, that its dominance is slipping.


http://online.wsj.com/article/SB10001424052748703848204575608401463252326.html


Simon Leopold of Morgan Keegan put out a note last night -- he doesn't see market share being in danger & thinks Cisco took some share back from Juniper while losing some to AlcaLu (that's based on Infonetics numbers that I haven't looked at in detail yet). Market share ping-pongs back and forth, so I'm not sure if there's the makings of a long-term trend there.


As for Cisco retro-ness, well, they are trying to expand into other areas. But yes, they have a franchise to protect. And government spending... yes, those difficulties seem likely to last a while. No easy way out of that one.

quicktime 12/5/2012 | 4:18:42 PM
re: Is Cisco's Q1 Contagious?

Alcalu/Huawei may be a threat to Cisco;


Not sure how could Juniper be . Juniper's


revenue comes mostly from SP market, and


their enterprise effort did not get what they


want.


 

Sisyphus 12/5/2012 | 4:18:41 PM
re: Is Cisco's Q1 Contagious? I think the entire industry is headed for some short term pain... And wall street in all it's wisdom only looks to the next quarter because influencing swings isnthe way they make money... Come on... :)
that said, cisco and every networking player faces the commoditization of traditional networking gear. Ergo the push for "market adjacencies"... at least cisco is trying to set the seed for semi-destrucive reinvention.
It shall be interesting...
Pete Baldwin 12/5/2012 | 4:18:39 PM
re: Is Cisco's Q1 Contagious?

> Juniper's revenue comes mostly from SP market, and their enterprise effort did not get what they want.


Are you sure about that? I was under the impression (from people other than Juniper) that the EX had made some decent inroads into enterprise.

Pete Baldwin 12/5/2012 | 4:18:39 PM
re: Is Cisco's Q1 Contagious?

Well put, Sisyphus. Cisco started looking at a post-router world a while ago, although the adjacencies they were talking about in 2004 weren't as radical as Flip or Umi:


http://www.lightreading.com/document.asp?doc_id=62657


In a more conventional vein, look at the data center: Vendors are talking about all-in-one kinds of architectures where you're no longer buying switches (a commodity) but the entire network (a premium, lock-in item).

quicktime 12/5/2012 | 4:18:36 PM
re: Is Cisco's Q1 Contagious? <div>


Are you sure about that? I was under the impression (from people other than Juniper) that the EX had made some decent inroads into enterprise.


&gt;&gt; Number shows everything.&nbsp; in their 3.6 billoin revenue, what percentage for EX?


&nbsp;&nbsp;&nbsp;&nbsp; How about other enterprise switch vendors?


&nbsp;

</div>
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