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Cisco And Its Good Timing

Wednesday, 4 Feb 2009 | 9:40 AM ET
AP

There may be a method to Cisco's madness when it comes to earnings announcements, and not running with the pack.

The company reports after the bell tonight, and comes two weeks after the flood of tech earnings began: Relatively good news from IBM , Apple , Google and Amazon ; not such good news from Yahoo and eBay . And lots of comparisons and hand-wringing along the way.

Today, Cisco has the spotlight all to itself (Hewlett-Packard does the same thing in a couple of weeks), and with tonight's lone report, Cisco gets to eschew all the noise of those other companies' numbers and have the Street focus on it.

The reason that's good: there's a fair amount of pessimism surrounding Cisco's financial performance. Not that the company did something poorly, but because it was bitten by the same macro-economic bug that's depressing everyone else. Still, the company joined a short list of big cap tech companies that surged on Monday, including Microsoft which also sorely disappointed the Street with earnings recently, because of what appears to be a significant shift among tech investors: let's not focus on earnings this quarter, or even next, they seem to be saying. Let's look at fundamentals, market sector position and cash on the balance sheet to see which companies are poised best to take advantage of a turnaround when it finally happens.

Analysts expect Cisco to report 30 cents a share on about $9 billion for its second fiscal quarter. Look for. 64 percent gross margin as well. Cisco's quarter ended January 24, or almost a full month after everyone else, so its numbers will be closely watched for a glimpse into what other companies might be seeing well into their next quarters.

Couple that with disappointing news and job cuts at Cisco's much smaller rival Juniper Networks last week, and it seems clear that Cisco faces some steep head winds like everyone else.

But unlike everyone else, Cisco is sitting atop a mountain of cash, the company has a proven track record of running lean and mean, it's in the midst of a billion-dollar cost-cutting plan to do so, and CEO John Chambers has seen these kinds of slowdowns before. And that's where "timing" comes in. When it comes time for an economic bounce-back, a few key companies in their respective sectors will emerge as true leaders. There will be an infrastructure/capex recovery and just about every analyst I'm talking to says that Cisco will indeed be one of those leaders.

Nor is the company sitting still. Chambers is investing in new technologies to take on IBM and HP, with Cisco confirming its entry into the blade server market, preparing to release new virtualization software based devices.

True this sector isn't as profitable as the networking markets in which Cisco already competes, but the offerings could help boost other Cisco units as the company becomes a key, one-stop shop for all kinds of back-end equipment.

No one seems to know when the economy will turn. That's why Chambers' comments on his 430pEST conference call will be studies so closely. But if this company can merely meet expectations, and keep its outlook stable, that might be enough to pop Cisco shares. So much bad news, based on share price, seems already baked in.

Commentary from Chambers has never been more important than it will be tonight.

Questions? Comments? TechCheck@cnbc.com

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