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CISCO SYSTEMS (CSCO)
Leading producer of networking hardware -- routers, switches etc. -- and everything that goes with it. Sells networking software and services networking equipment for large companies and governments.
Reports Q3 earnings Tuesday 5/6 at approx. 405p ET. Conference call at 430p ET.
WHAT WILL MOVE THE STOCK: 
U.S ECONOMY - The last time Cisco [CSCO
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] reported earnings, CEO John Chambers said U.S. and European customers were getting cautious and soft selling conditions could continue. Last week, competitor Sun Microsystems' [JAVA
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] shares sank a whopping 23% the day after the company reported disappointing Q1 results. Sun said "significant challenges" in the U.S. market were a big factor in the company's weak sales numbers. Cisco shares actually went up following Sun's report, but the questions remain: Are Cisco's sales being hurt by the slowing U.S. economy? When will selling conditions improve?
GLOBAL PERFORMANCE - Will growth in developing countries offset weakness in the U.S. (and possibly Europe as well)?
PRODUCTS VS. SERVICES- Sales of services and products are both growing strongly, but services is growing faster. However, margins on services are lower.
GUIDANCE - On February 6, Cisco said Q3 revenues would be about $9.75 billion and fiscal '08 revenues would be approximately $40.3 billion. What's the outlook now? Last quarter, guidance was given on the conference call, not in the earnings release.
OTHER NUMBERS - Get a feel for Cisco's strength going forward from two figures: days sales outstanding in accounts receivable (DSO) and inventory turns. DSO shows how deep Cisco order book is. Last quarter, Cisco had 39 days sales outstanding. A drop in inventory turns could raise concerns about slowing sales and/or a pileup of inventory. Last quarter, Cisco reported 10.8 inventory turns (on a GAAP basis).
ESTIMATES:
Q3 EPS up 7% to $0.36, revenues up 10% to $9.750 billion
Q4 EPS up 8% to $0.39, revenues up 9% to $10.296 billion
FY 08 EPS up 15% to $1.54, revenues up 13% to $39.427 billion
FY 09 EPS up 10% to $1.69, revenues up 11% to $43.932 billion
Source: Thomson Reuters
Year-ago actuals: Q3 EPS $0.34, Rev. $8.886 billion
*All estimates are current as of 5/5*
FACTOIDS:
COMEBACK IN PROGRESS? - On April 15th, Cisco closed at a seven-week low of $23.11. Since then the stock has bounced back nearly 14%. However, Cisco is still more than 20% below the 6+ year high it hit back in November -- Cisco closed at $34.08 on Nov. 6, the highest since Feb. 2001.
CRAMER LIKES OTHER TECH - On May 1, Jim Cramer recommended selling Cisco, Intel [INTC
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] and other "old tech" in favor of "new tech" companies that are showing more innovation.
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