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Cisco's Outlook Ready To Set Tech Stage

Tuesday, 5 Feb 2008 | 12:35 PM ET
AP

If guidance and outlook have been the Achilles' heels of so many great-earnings-reports-gone-bad this earnings season, then the grand-daddy of them all could come at the close Wednesday when Cisco Systems reports its earnings.

But here's the thing: with a pessimistic tone already wafting through the Silicon Valley, if Cisco isn't as cautious with its future as some experts are projecting, the stock could actually see a relief rally of sorts.

Let's dig in a little deeper. Analysts are expecting 38 cents in earnings per share on $9.8 billion in revenue. Just about everyone I'm talking to expects Cisco to meet those expectations. But it's the guidance that will grab the headlines.

There have been so many negative reports lately about growth, cap-ex spending by some big companies, a slowdown in commercial spending that many analysts are anticipating a cautious outlook at best. CEO John Chambers has used the word "lumpy" a lot and we may hear that characterization again. Today's surprisingly weak ISM numberisn't helping the company's cause, either.

The silver lining might come with what the company sees from overseas customers. International business has been Cisco's saving grace before, but it's not clear business there will be enough to offset the perceived slowdown of business here.

And shareholders are reflecting that concern, driving Cisco shares down by 23 percent last quarter. Worse, Cisco shares now sit at a 52 week low, despite an ambitious stock repurchase plan that included a $10 billion boost on the quarter, and totaling $62 billion since the buyback program began in 2001. And of course the idea that a global infrastructure build-out bodes well for tech companies like IBM, Intel,Microsoft, but maybe mostly Cisco.

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Citigroup says it is "warming" to Cisco, but anticipates pressure from Wednesday's earnings news. The firm is lowering full year 2008 estimates from $40.4 billion in revenue and $1.60 in earnings per share to $40 billion and $1.55. Citi cites near-term risks including the credit crunch showing the potential for slowing business.

Citi also says following what it expects will be a further slide in the company's shares post-earnings on Wednesday, it would start accumulating shares. Much the same message at Pacific Crest Securities, calling $22 a share "trough value," though expecting the company to report an in-line quarter while lowering the outlook for its current quarter. Interestingly, the firm doesn't expect Cisco to lower its 13 percent to 16 percent full year growth-guidance, and still maintains its $32 target on the shares.

Still, this will all come down to the way John Chambers characterizes these numbers and how he massages the news, both good and bad. His comments have as much influence on tech as Ben Bernanke does on the broader economy. This will be a very interesting report indeed. The ramifications could be huge.

Questions? Comments? TechCheck@cnbc.com

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